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UK interest rate unchanged at 5.5% but inflation still above target

Thursday, June 7th 2007 - 21:00 UTC
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The Bank of England left Thursday UK interest rates unchanged at 5.5% but analysts say a rate rise later this year remains likely. UK rates have been increased four times since August last year in an attempt to rein in inflation.

But with price growth still strong, many analysts expect a further rise to 5.75% before the end of the year. While consumer price index (CPI) inflation fell from 3.1% to 2.8% in April, the measure still remains well above the government's target of 2%. Recent economic releases have suggested business confidence is rising and have also indicated that companies are looking to raise prices. In the housing market, while price growth has slowed, the annual rate is still hovering around the 10% mark. But earlier this week, the latest survey from the British Retail Consortium recorded a drop in underlying sales during May, with recent rate rises being cited as one factor putting off shoppers. The Confederation of British Industry chief economist Ian McCafferty applauded the Bank for resisting "rushing into a rate rise that, though widely expected, may still prove unnecessary". He added that "evidence is starting to emerge that the four rates rises since August are having an impact". However the UK is not the only country concerned with the problems of inflation. Last Wednesday the European Central Bank hiked its main interest rate to 4% and also increased the inflation forecast for the Euro zone this year from 1.8 to 2%. All eyes will now be set on the US Federal Reserve which meets at the end of the month and is also expected to leave the basic rate unchanged at 5.25%, in spite of calls to help the depressed housing sector in the US.

Categories: Economy, International.

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