MercoPress. South Atlantic News Agency

BoE adopts wait and see policy and leaves rates at 5.75%

The Bank of England left UK interest rates unchanged at 5.75% for the fourth month running. The Thursday decision is likely to have been influenced by the surging oil price and the growing risk of inflation.

However no explanation was given to leave rates on hold. But recent comments from one of the Bank's policy makers Kate Barker suggests the BoE is currently more concerned about the risks that higher energy costs will feed into consumer prices and wage demands than the possibility of a weakening economy. UK rates have been on hold since July, when they rose to 5.75% from 5.5%. In the run-up to the Bank's announcement, some analysts had begun to consider that the Bank's rate-setting Monetary Policy Committee (MPC) could surprise by announcing a rate cut. But Ian McCafferty, CBI chief economist said that the hold decision was not unexpected. This week, figures from the British Retail Consortium showed consumer spending in October was its lowest for a year, while recent reports on the housing market have all indicated that house prices have reached a peak. Fresh fears have also been raised about the health of the banking sector, after the chief executives of Merrill Lynch and Citigroup were both forced to quit within a week. Banks have confessed to staggering losses as a result of investments linked to bad US home loans. For these reasons, the British Chamber of Commerce said it "regrets" the BoE did not reduce rates this month, particularly given that the most recent inflation data showed the Consumer Prices Index stood below the government's 2% target Others agreed that a "wait-and-see" approach was justified given that there have been few signs that the problems at Northern Rock, caused by its inability to finance its business at the height of the global credit crisis, will be echoed at other mainstream UK banks. Chancellor Alistair Darling this week asserted that the UK economy was strong enough to weather "an unparalleled period of financial uncertainty". He added that years of big profits at UK banks meant their balance sheets were sufficiently solid to withstand any losses linked to the slump in the US housing market. Meantime the British pound reached records against the US dollar not seen since the eighties. In early trading sterling reached 2.1117 US dollars and closed at 2.1081. The pound-US dollar rate was last at similar levels in September 1981. The interest rates differential between the British pound and the declining US dollar and other currencies is seen as the main reason for the current strength of sterling.