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Economy

Interest rates: not too late

Written by Gary Howes
Thursday, 04 September 2008
There has been a largely negative reaction to todays MPC decision. Commentators have today criticised the Bank of England's decision to hold interest rates. Related Articles UK inflation 'yesterdays story' RBS: Glass half empty at Bank of England Credit Suisse: Europe economic conditions improve Massive fall in inflation predicted RBS report: This is what a slowdown looks like It is still clear that at present the main concern for the Bank is inflationary pressure, which has attracted the criticism of those that believe making funding available for the economy the most pressing issue faced by the UK at present. Andrew Montlake, partner at independent mortgage broker Cobalt Capital, was scathing in his analysis of the decision: "Once again the Bank of England has shown caution, a reluctance to make the rate cut that is urgently needed because of its strict remit to control inflation. But sometimes you have to play it as you see it, take action even if that action means you're not doing things strictly by the book. If we continue with this wait-and-see approach for much longer, it will be a case of waited-and-wished-we-bloody-well-hadn't." The British Chamber of Commerce (BCC) offered a more conciliatory note, "the MPC's widely-anticipated decision today, to keep rates on hold at five per cent, is understandable. In the face of rising inflation, the MPC must maintain credibility." However despite the BCC's concern on inflation they said that the time to drop rates was closing in on the economy. "The MPC cannot ignore the fact that the UK economy is very likely in technical recession already, and there are distinct risks that the situation would worsen. A major recession can still be prevented if prompt action is taken. The MPC should start cutting interest rates promptly in the next few months, as soon as UK inflation peaks,” read a statement by the BCC. Stuart Law, Chief Executive of Assetz said, "The Bank is playing a dangerous waiting game by stalling on a necessary cut in interest rates for another month. The recent spike in inflation has been driven almost entirely by oil and food pricing. However, it is now a year since the credit crunch began, and while rates for tracker and fixed-rate mortgages have fallen back to levels seen a year ago, delaying on a further cut in interest rates risks further stagnation to the market." A great deal of criticism centred around the fact that oil prices were dropping. Global oil and food prices have been the main drivers of inflation not only in the UK but across the globe. Citing the falling oil prices it is expected that inflationary pressure will eventually ease in the coming months.