Bank of England leaves interest rates at 4%
Anna Fifield, Economics Reporter
Published: April 8 2004 12:00 | Last Updated: April 8 2004 12:00
news.ft.com
[if they raised rates this country would be f*cked as the export business would be immediately hit with the increase in the value of the UK pound. This is just talk to try and control property market prices. A raging bubble in the UK. Fiat currency is just a pile of crapola. All jmho of course.. pb]
The Bank of England on Thursday left interest rates unchanged at 4 per cent, making a quarter-point rise in May highly likely, economists said.
April's monetary policy committee meeting was expected to be one of the closest since the Bank was made independent seven years ago, as the rate-setters weighed up strengthening growth across the economy and the housing market's unexpected resilience against the rise in the pound and industry's fragile recovery.
City economists were almost evenly split on whether the MPC would raise rates by a quarter-point this month or next, so although there was so much uncertainty over the outcome of the meeting, the result will come as little surprise.
"Our best guess has to be that the case for a rate hike next month has now become much stronger," said Alan Castle of Lehman Brothers.
A Financial Times poll last week found that 22 out of 40 economists expected a rate rise this month, while the remainder thought the MPC was likely to wait until next month, when it publishes detailed inflation and growth forecasts.
However, Monday's data showing a sudden, unexpected fall in manufacturing output during February cast a shadow over the otherwise generally upbeat economic news, causing some economists to back away from their predictions of a rate rise.
The arguments in favour of a rate rise are the unexpected resilience in the housing market, continued record levels of household debt and above-trend growth across the economy which will fuel inflationary pressures.
Recent data has suggested that annual house price inflation is running at about 20 per cent, much higher than expected, while household borrowing and mortgage equity withdrawal continues to rise to record levels.
Counteracting these factors, the MPC does not want to be seen to be responding solely to the housing market. Also, the strength of industry's revival is in doubt, the pound has continued to strengthen and the Bank will publish its Inflation Report next month.
The pound has risen close to a 14-month high against the euro this week as the markets priced in a growing likelihood of a rate rise in the UK and a rate cut in the eurozone.
The MPC has signalled that it plans to raise rates "gradually" and as the past two rises were both in Inflation Report months - November and February - many economists expect the committee to follow this routine.
But Ciaran Barr of Deutsche Bank said: "By delaying [on Thursday], it maintains a very gradual process and aligns decisions firmly with the Report. On that line of thinking, it could take until August before the repo rate returns to 4.5 per cent, by which time the economy might well have considerably more momentum."
The EEF manufacturers' organisation was relieved that the MPC delayed the next rate rise.
"Two rises in three months would have poured fuel on the fire of expectations of further rises to come, potentially pushing the pound todamaging levels against the dollar," said Steve Radley, the EEF's chief economist.
"The Bank can afford to wait longer to assess the impact of the last two rate rises on both the consumer and the dollar weakness on the economy overall," he said. |
