Interest rate stays at 5%

Following the July Monetary Policy Committee meeting last week it has been announced that the base interest rate is to remain on hold at 5%. The Bank of England cut the base rate three times since December, taking it from 5.75% to 5%. However, since May the base rate has remained static after inflation levels soared to 3.3%, which is way over the 2% target set by the government.

Industry groups had been calling on the Bank of England to cut rates again this month in light of the weakening economy, risk of recession, and plummeting business figures in the service and manufacturing sectors. However, the central bank has once again resisted these calls to cut rates, deciding instead to try and bring inflation back under control by keeping the rate on hold. The move came as no surprise to most industry officials, although some had been wondering whether the interest rate might actually increase given the soaring level of inflation.

One official from the manufacturing body EEF said that whilst the bank had decided to keep rates on hold again for July it had to be prepared to cut rates again if the economy showed further signs of weakening. He said: “If further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again.”

Reports claim that none of the MPC members voted for an increase in the base rate. Officials have said that there are a number of factors that have indicated that the economy is growing every weaker, including new mortgage approvals falling by 64% compared to the same period last year, house prices falling for the eighth month in a row, a decline in the output of UK factories and mines, and major job cuts amongst housing builders and developers.

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