Battling with the twin evils of soaring inflation and weaker growth, the Bank of England has kept interest rates at 5 percent for the fourth month running.
With the risk of Britain possibly facing its first recession since the early 1990s, the MPC has clearly opted for caution.
But aren’t the prices of oil and other commodities starting to fall? Isn’t the greater risk towards sluggish growth?
Do you think the Bank is being too cautious and should have gone for a cut?
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7 comments so far
The Bank is right to target inflation. Interest rates are already historically low and should not be cut further.
Where is the “risk” in sluggish growth? The current financial problems have been caused solely by irresponsible lending since 2002 on the back of low interest rates which fuelled excessive and unsustainable growth which now has to be paid for.
- Posted by AndyReal interest rates are hurtling down towards 1%, once inflation is taken into account. It is now cheaper to buy tinned food today with borrowed money than to buy it next year when you have earnt that money.
Interest rates need to go up. Soon, and significantly. Besides, in the long-term, lower house prices are good for the economy, not bad.
- Posted by JohnI’m inclined to agree there is little sense in reducing interest rates. It may “kick-start” a return to what’s been happening: reckless borrowing and credit expansion, but in light of what the crdit crunch is about, that’s simply pushing problems further down the line. Rate reduction may ease borrowing for those who shouldn’t be borrowing; but it will be a deterrent to investors and savers.
The economy and markets will clear soon enough. Those who depend on borrowing may have to adapt to life without the many nice-to-haves they’ve been able to acquire with pieces of plastic.
- Posted by Dane AubrunI constantly amazed at in inability of most people to understand that there is a significant delay in the impact of interest rates changes on economic activity. Todays inflation problems are a result rates being too low in late 2005 and 2006. Raising rates now, in the absence of inflationary wage increases to deal with current inflation is pointless and is likely to hammer activity through late 2009 and 2010 to the point where a prolonged and protracted slow down ensues. Interest rates are not going to change the impact of Commoditiy price increases where there is a significant demand/supply imbalance and although an increase in the strength of sterling may offset some of this price inflation of dollar denominated raw materials, it will also significantly impact the competitiveness of our exports and hence the economy.
- Posted by JamesAren’t we forgetting that the government gave up the use of monetary policy as a tool to stimulate the economy when they granted the Bank of England independence. The Bank’s sole responsibility is keeping inflation in check, therefore a rate cut would certainly be the wrong way to go.
- Posted by TomIt is a practical economic measure in the angle of national economy,that the banks are doing right to check the inflation rate.Excess money flow in the market, geerated from the financial institutions in terms of interests as acquired by the investors,could be dominated.In this process of restricting the interest rate at 5% as the drive taken by the banks, would support the the delimitation of the higher prices of essential commodities.The banks present appearance is considered to be extra cautious,is right in the sense.
- Posted by PRANAB HAZRAWith a view to curbing the availibility of excess money from the financial institutions like banks,such control of interest rate is necessary.High interest rate would contribute or generate more money to the investors- increasing more purchase power-that might increase incontrolable demand in the market ultimately.More demand than required,must encourage the prices of the essential commodities to go upward.It is experienced that extra money can induce any customer to initiate more purchases than it requires.Which does bring an imbalancement between demand and supply creating inflation in the market.Such stick to interest rate,is an economic measure to resist inflationas well as to achieve economic groth, as taken by the bank.
- Posted by PRANAB HAZRA