The Bank of England's Monetary Policy Committee kept UK base rates on hold at 5% at today's midday policy setting meeting, following last month's cut.
A break from rate-cutting had been widely expected as inflationary pressures have not yet abated, despite widespread gloom about the UK and US economies.
The housing lobby had argued for a cut, with the Royal Institution of Chartered Surveyors expressing disappointment at the MPC’s inaction. However, the move was cautiously welcomed in other quarters. “The positive message to emerge from the no-change decision is that the MPC does not judge the UK economy to be in a parlous condition that requires the first back-to-back reduction in interest rates since 2003,” said Edward Menashy, chief economist at Charles Stanley.
The consensus is that this is a pause in a loosening trend, however, rather than the end of a series of cuts. Ian Kernohan, chief economist at Royal London Asset Management, said: “For choice, the market wasn't expecting a cut today and the MPC would have been loath to surprise. However, given the deterioration in economic data over the past few weeks, another cut cannot be far away. The tightrope between slowing growth and rising inflation means that, unlike the Fed, the MPC is likely to be measured in its approach to rate changes.”
An hour later in Athens, the European Central Bank announced it is also to keep its lending rates on hold. The main refinancing rate is unchanged at 4% for the 12th month in succession.
Simon Ward, chief economist at New Star, said that the ECB’s recent hawkishness is not really warranted by the historical data, which suggest a neutral to slight easing bias. “They might tone down the rhetoric a bit this month, but to see a cut we would need energy prices to fall,” he added.
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