Interest Rates Stay at 5.75%
07 September 2007
The Bank of England has decided to keep interest rates at 5.75 per cent for the second consecutive month.
The Monetary Policy Committee (MPC) was widely expected to keep rates on hold this month, after a surprise drop in inflation to 1.9 per cent in July caused MPC members to keep rates at 5.75 per cent in August.
Recently banks have shown caution in lending, following a crisis in the US sub-prime mortgage sector.
This has led to higher interest rates for consumers as bank's reticence to lend money kicks in. Any future interest rate hike could exacerbate this situation, analysts claim.
Commenting on the decision Trevor Williams, chief economist for Lloyds TSB Corporate Markets said: "There are very good reasons why the Bank of England has kept the lid on rates this month. Above all else, the market turmoil of the past few weeks means it is simply not the time for a rise.
"One consequence of the so called 'credit crunch' has been that banks have become increasingly wary of lending to each other - and as a result the rates at which they lend have edged up substantially.
"It has to be said, however, that even without the credit crisis, rates would probably have stayed on hold this month. Falling inflation, slowing earnings growth and the cooling housing market are just a few of the many signs that rates have probably reached their peak."
Mr Williams added that he believed rates to remain at their current level for the the foreseeable future: "The MPC will want to wait for the pain of the credit crisis of recent weeks to ease - and for the effects of past rate increases to show through more clearly," he said.
Interest rates have risen five times since August 2006, with the latest rise in July taking rates up from 5.5 per cent to 5.75 per cent.
