The Monetary Policy Committee of the Bank of England today voted to keep the UK base rate at 5% for the third month in a row.
The decision was widely expected by the market, as it is still unclear which of the twin threats of inflation and a slowing economy poses the greatest problem. While the minutes of last month’s meeting showed a rate increase was considered, many commentators still believe the next move will be down.
Ian Kernohan, economist at Royal London Asset Management, said: “With growing evidence of recession, the next Inflation Report [out on 13 August] should signal a decisive shift in favour of reducing rates and I still expect cuts before the end of the year.”
But Aegon Asset Management head of strategy William Dinning cautioned that it could take more time for the dust to settle. “The committee will have to juggle with the combination of above-target inflation and below-trend growth well into 2009. Leaving interest rates unchanged until we get clearer evidence of whether inflation or recession is the bigger problem makes sense,” he said.
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