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Interest rate in UK on hold at 5.75%; eyes set on November

Thursday, October 4th 2007 - 21:00 UTC
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The Bank of England's Monetary Policy Committee voted Thursday to maintain UK interest rates on hold at 5.75%. The decision comes despite pressure to follow the example of the US Federal Reserve to cut the cost of borrowing and help with the credit crunch.

With the base rate left at 5.75%, economists believe there's a strong chance that a reduction to 5.5% will follow next month. A slight economic slowdown forecasted in the UK next year and calls to shore up confidence in the wake of the Northern Rock crisis could work in that direction. Savers queuing on a British high street and the difficulties some institutions had to secure funds have inflicted damage to consumer spending sentiment. However as happened with the European Central Bank the Bank of England seems to be adopting a "wait-and-see" policy on rates until a clearer picture emerges of the effects of the recent global credit squeeze. With the problems in the global credit market making it more expensive for commercial banks to lend and borrow from each other, a rate cut would have helped to ease this situation. A rate reduction would also have helped UK homeowners who have seen mortgage rates increase this year. But the Bank also has to guard against inflationary pressures building in the economy. Despite the most recent UK inflation data showing a fall in August, 1.8%, --measured by the government's preferred Consumer Price Index and the lowest in more than a yearâ€" concerns about current high oil prices and higher food costs persist. No more than five weeks ago a significant percentage of economists forecast the Bank would soon be raising rates by 25 basis points to 6% as it sought to cool demand and ensure inflation remained close to its 2% target. The British Chambers of Commerce (BCC) said it wanted to see a rate cut in November. "Following the Northern Rock crisis, the Bank of England must restore its credibility and authority" said BCC economic adviser David Kern. "It must show greater sensitivity to the problems of the wider economy, while at the same time making it clear that it will not yield to outside pressures".

Categories: Economy, International.

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