The Bank of England announced on 10 July 2008 that interest rates have been held at 5.0%. Despite calls from the business community to reduce rates, the decision to hold them at 5.0% was widely anticipated. With inflation now at 3.3%, well above the 2.0% target due to rising fuel and food costs, the Bank has been reticent to lower rates.
However, a recent report highlighting the potential of a UK recession on the horizon will have no doubt placed increased pressure on the MPC this month. Many businesses have expressed concerns that rates will need to come down if the current economic slowdown worsens.
The Bank has now held interest rates for the third month in a row, with suggestions of a deep divide within the MPC about the need to reign in inflation and the continuing economic downturn. Consumers remain under increasing financial pressures with Nationwide's Consumer Confidence index reportedly at its lowest index level in recent history.
Howard Archer, Chief Economist at Global Insight, stated, "The increasing squeeze on consumers' purchasing power from high inflation, the sharply weakening housing market and ongoing tight credit conditions all pose significant and heightening downside risks to growth. Furthermore, unemployment is now rising, while businesses are paring back their investment plans markedly."
House prices continue to fall amidst the gloom, while this week alone, 5,000 jobs were axed from the building sector, as the country's leading building companies continue to struggle in the current property market downturn.