Bank of England stuck to a conservative approach and left interest rates unchanged at 4.5 per cent for the third month. After two day deliberations, the Monetary Policy Committee’s (MPC’s) nine-member strong board came to this decision in the wake of soaring fuel prices which increased the cost of living.
Expectedly retailers and other businesses were disappointed. David Frost, the director-general of the British Chambers of Commerce, said though the monetary policy committee had acted as expected, he felt it was “unable to act more boldly to counter the worsening economic circumstances and the sharp slowdown in the pace of economic activity".
But as was made clear by Richard Lambert, a member of MPC, when he said last month: "We are not in business to rally shoppers back to the high street."
There was no element of surprise to industry or the City as both of them were expecting MPC to "play it safe". Besides, Mervyn King, the Bank's governor cautioned of a risk of higher inflation becoming entrenched in the economy. King, who was outvoted in a close 5-4 decision in August's decision to cut rates, had no such problems now.
Ian McCafferty, the CBI's chief economic adviser, agreed with the Bank’s decision to play it safe. He said: "While conditions remain difficult in the retail and manufacturing sectors, there are some signs of a recovery in the housing market."
The opinion among City economists is that MPC will cut interest rates next year. But the decision to keep rates on hold along side expectations rising for a European Central Bank rate hike is giving credence to claims of an increasing number of analysts who expect rates to be hiked in 2006.
Audrey Childe-Freeman, economist at CIBC World Markets felt: "The Bank (is) not in the mood for 'fine-tuning' the economy ... at a time when most G7 central bankers are worrying about inflation and arguing the merits of rate hikes."
Posted
on : Fri, 11 Nov 2005 07:05 GMT | Banking News
By : Anne Philips
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