Base rate held at 5.75%

by Gill Montia

Story link: Base rate held at 5.75%

The Bank of England’s Monetary Policy Committee has opted to keep the base rate at 5.75%, making it the fourth month in a row that the rate has remained unchanged.

The decision has come as no surprise to analysts, taking into account the oil price (which is now almost $100 a barrel) and the effect this could have on inflation.

No explanation was given for the decision but it is likely that the Bank’s concerns over the inflationary effects of higher energy costs outweighed the benefits to the economy of a cut in the rate.

The British Chamber of Commerce has said it “regrets” that the Bank did not reduce the base rate this month, particularly in view of the fact that the Consumer Prices Index is currently below the government’s 2% target for inflation.

In addition, the British Retail Consortium has published October figures showing that during the month consumer spending was its lowest for a year.

The Bank’s “wait-and-see” approach may also reflect fears about the health of the banking sector.

These have been heightened by recent results from Merrill Lynch and Citigroup.

Both banks admitted to much larger losses in connection with the US sub-prime mortgage crisis than had been forecast.

The Bank of England’s Quarterly Inflation Report will be published next week and this, together with the minutes from the latest MPC meeting, could indicate the future direction of interest rates.