Bank of England policymakers have held rates steady at 5 percent for a fifth month running.
Inflation currently stands at more than double the central bank’s 2 percent target but any rise in rates to try to choke that off risks aggravating the overall economic slowdown caused by the credit crunch.
Firmly impaled on the horns of a dilemma, most of the the nine-member Monetary Policy Committee, including Bank Governor Mervyn King, thought no change was the best option, given the risks.
What would you have done?
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18 comments so far
Unbelievable! The MPC is “fiddling while Rome burns”. They have to be the sleepiest and most out of touch bunch of economists (except for Blanchflower who must be really getting frustrated with his colleagues). They are only delaying the inevitable. What’s the point of holding rates for another month, when it’s clear to all they will only have to cut agressively the longer they stay passive. The FED cut the US rates agressively, and guess what, there’s been no inflation monster as a result of their interest rate cuts.
- Posted by MaxInterest rates clearly need to be raised - perhaps by as much as 100 basis points.
- Posted by Patrick BaxterInflation is the key risk here. If inflation is allowed to run even higher than it already is (which is the primary effect of BoE reducing interest rates), then be prepared to say goodbye to even more of the cash in your wallet.
I think they’ve made the right decision. Aggressive interest rate cuts would increase inflation and put us all in “let’s pretend there’s not a problem” mode - utter disaster. Tinkering would have no effect at all. Increased rates could well tip the economy into a nosedive. That would be unfortunate as the pilot just died, part of one wing is missing, and the undercarriage won’t go down.
- Posted by MatthewInflation rates need to be cut, and soon. The economy is in severe trouble as it is and the BoE is doubling the pressure by keeping rates unchanged. What a tragic move.
- Posted by PatriciaIf I were in the position to help the UK economy, I would have slashed the int rates straight away. What is the need to wait until the end of 2008? That’s just pointless and ridiculous isn’t it? What purpose is it serving, we’re just stretching out the pain.
- Posted by Maria KThe BOE are probably right to hold at this point. They have made disastrous errors previously which have weakened sterling & fuelled inflation.
- Posted by frank observerDoves like Blanchflower are largely to blame for the crisis that the UK now finds itself in from the point of view of interesrt rates (though poor government & personal greed have contributed too).
Ireland and Spain are tied to the massively overvalued EURO and will be suffering similar problems but for different reasons.
With the errors made by the BOE, they have to sit on their hands & hope that sterling starts to recover and inflation begins to fall; then cuts may be possible. But hopefully they’ll never again allow the doves to create a repeat performance of this catastrope.
It’s interesting that so many people want a rate cut. At the current level, interest rates are not exactly bearing down on RPI inflation (the more realistic measure)are they? We should be clear who would lose out if inflation continues to rise. Firstly, there are savers, who probably haven’t been able to get a real return on their money for a long time (especially after tax). Secondly, there are thousands, perhaps millions, of pensioners whose pension schemes pay an amount which increases in line with RPI but such increases are capped at a certain level, often 5%. Why should these sectors of society be expected to kickstart the economy by providing cheap finance for people who are less careful with their money so that they can start spending again?
- Posted by DerekAre we in trouble? Yes. What is the point of waiting till the end of the year to then cut rates? None. If an economy is sinking at the rate that it is, and inflation is rife, what socio-economic sense does it take for the MPC to work out that the issue should be tackled immediately, versus playing the ‘wait-and’watch’ game…
- Posted by PeterWhy do so many people want rates to be cut? The BOE is making the right move to keep things steady and curtail a deeper crisis. Before we start claiming its not in the public good, we must ask ourselves how wise it’d be to slash rates in a frantic effort to lift the economy. Instant gratification is not the answer. Let them do their job.
- Posted by Lucy PThe rates decision was totally on the mark and we should respect the move. If we are to show any faith in the people leading us, then this is the time to do it. They know very well that it’s for the common good as the Lucy has said, so let’s just leave them to it shall we?
- Posted by MelanieKeeping interest rates steady is a very crippling move for the economy - what good is it going to do to hold back on cutting rates, when we need it most now? The government is not realising that public morale is hugely low, or shall we say ”all-time low” (a favourite phrase of all media outlets) and they are not taking this seriously enough. When are they going to wake up and smell the coffee?
- Posted by RobThe Bank has proved time and time again that their moves are often sound and well-timed for the economy…Now if that statement were true, then we wouldn\’t be asking the question that this blog eloquently raises. Did the bank make the right move this time? As almost always, no they did not. The public need a rate cut desperately and with inflation hitting the roof and cost of living rising at a scary rate, this needs to happen now.
- Posted by Miriam JBy far a wrong move on all counts. The previous posts explain well why this is not good timing to keep rates the same, but more importantly, doesnt the gment want to know what the public thinks and wants…clearly they do not care.
- Posted by KevHow can this be the right move when the economy is suffering, people are dejected and we’re having to keep our wallets the tightest they’ve ever been. The Bank has total disregard for what consumers and the general public need and want.
- Posted by AliciaThe BoE made a monetary policy error by keeping rates so low around 2003 when they should have started some gentle tightening. Now they are caught between a rock and a hard place: do they cut rates and reward property speculators, possibly stoking up another bubble OR maintain rates and help thrifty saver, pensioners and set a more sustainable course for the economy. They are like rabbits caught in the headlights, afraid to move in either direction but frozen to the spot.
- Posted by StephenNo it was not the right move and by a long margin. The gment just doesnt care enough to control the economy, where is their so-called power? Other countries pull up their socks and rejuvenate the economy when things are dire. Our gment puts their hands up in the air!
- Posted by comet23To answer the question.. No, they have got it wrong! I feel it is high time both the government and the guys within the MPC realise that us hard working tax payers need and deserve a break! Not so that we can go out and start spending again, but that we can actually see some form of meagre in road into the wallet busting increases that we are all having to tolerate.
- Posted by David LaycockPart of the bigger problem in this country at the moment is that we are governed/dicated to by people who dont have to look for the buy one get one frees in the supermarkets!They are wholly out of touch with the realities of modern day life. To all you people at the top, wake up and realise that greed doesnt rule, reality and fairness does!! Start helping all us lot down here by allowing us to eat and be warm! David
Me again.. I think both Messrs Darling & King should spend a month living in our world, where a quarter point reduction equates to circa £45.00 a month to me. This they probably spend on an egg and cress sandwich and a light refreshment at lunchtime, to me its the majority of a weeks shopping bill, to allow me the audacious privilege of being able to eat!!
- Posted by David Laycock