MercoPress. South Atlantic News Agency

Bank of England “wait and see” policy leaves rate at 5.75%

The Bank of England decided Thursday to leave the cost of borrowing at 5.75%. The Monetary Policy Committee (MPC) had been widely expected to keep rates on hold this month, as it waits to see the impact of the rises so far, but many economists predict rates will go up to 6% later this year.

Although the news comes as a relief to people with mortgages Bank of England remains concerned about the rate of inflation. The Consumer Prices Index fell back to 2.4% last month but is still above the 2% target. The decision was welcomed by several organizations that would like to see rates kept on hold in the near future. Rates have risen five times in the last twelve months. "This is the correct decision and will give retailers some much needed breathing space. Indicators clearly show that inflationary pressure is already easing," said Kevin Hawkins, British Retail Consortium director general. "Consumers are certainly starting to feel the squeeze. Disposable income growth is at record lows and savings levels are also very low. It is obvious that previous rate hikes are already having an effect but we won't see the full impact on consumer confidence and sales until later in the year," he added. Another factor that could have weighed on the bank's decision was the recent flooding across the U.K. The flooding is expected to have put upward pressure on inflation as food prices rise due to crop shortages and as consumers replace flood-damaged household goods. But the cost of the floods is still being assessed and the MPC could have preferred to take a wait-and-see approach on how these inflation pressures will play out in the longer-term. The BRC's Hawkins added that he believes inflation from the flooding is already starting to ease, with non-food prices continuing to decline.