The Great Debate UK

Hike in interest rates a step closer

- Edward Menashy is chief economist at Charles Stanley. The opinions expressed are his own. -

The Monetary Policy Committee of the Bank of England has kept its key lending rate at a record low of 0.5 percent, last reduced in March 2009 when it indicated that conventional policy had reached its limit and unorthodox measures such as quantitative easing were to be used.

Recent economic statistics however have been strong with the UK service sector staging a surprise return to growth in May 2009 thus raising the prospect that the country’s recession may be about to end. Also the Nationwide survey of consumer confidence hit a six month high in May 2009.

Recently the CBI indicated that the banks would tighten credit less aggressively in the next three months.  The survey indicated that only 7 percent of firms expected to be offered tougher conditions for new lending, down from 36 percent from the March 2009 survey.

Equities may now be a better bet

- Edward Menashy is chief economist at Charles Stanley. The opinions expressed are his own. -

Not exactly shock and awe as the MPC keeps base rates on hold at 0.5 percent while the most recent financial surveys have been unanimous in expecting a no change decision for some time now. It was always going to be an MPC meeting to discuss whether or not to persevere with quantitative easing. The difficulty for the MPC is that it is too early to judge the effectiveness of the quantitative easing. Clearly the Bank of England would prefer to wait at least until it publishes new quarterly growth and inflation forecasts to explain how it wishes to proceed.