BoE panel meets over interest rates

Last Modified: 09 Jul 2008
Source: PA News

The Bank of England begins its latest rate-setting meeting with little prospect of short-term relief in sight for homeowners and borrowers.

Policymakers on the Bank's Monetary Policy Committee (MPC) are set to hold interest rates at 5% for the third month in a row after the two-day meeting as inflation fears jostle with concerns over an economic slowdown.

Despite faltering activity among construction, services and manufacturing firms, soaring oil, food and energy prices have pushed inflation more than 1% above the MPC's 2% target to 3.3%. It is expected to top 4% later this year.

Most economists do not expect further rate cuts until the current inflation spike works its way out of the economy but Bank Governor Mervyn King has warned households will feel the squeeze in the meantime as prices rise.

Investec chief economist Philip Shaw said: "The Bank remains trapped between rising inflation and inflation expectations on one side and a sharply deteriorating economy on the other.

"The growing threat of recession should mean that the next move is down, probably next year."

Mr King - who was forced to write a letter to Chancellor Alistair Darling in June after the Consumer Prices Index rose more than 1% above target - has said the nine strong committee will judge the course of interest rates on a month-by-month basis.

But last week the Chartered Institute of Purchasing and Supply (CIPS) warned of falling activity in services, manufacturing and construction industries during June, the first time all three industries have shrunk since November 2001, in the aftermath of the 9/11 terror attacks.

Alongside gloomy data from the housing market, mortgage approvals have fallen to record lows and housebuilders have begun to shed thousands of jobs.

Despite a 3.5% record rise in official retail sales volumes during May - a freakish figure widely discounted by the market - high street bellwether Marks & Spencer also issued a shock profits warning last week after a fall off in sales during June.

These news feeds are provided by an independent third party and Channel 4 is not responsible or liable to you for the same.