Rates remain on hold
THE Bank of England kept rates pegged at 4.75% for a ninth consecutive month today. Signs of a spending slowdown on the High Street and a weak property market were enough to convince the Bank's decision-making monetary policy committee no action was needed.
Last month, many economists had pencilled in a rise to 5% for May after figures showed inflation had unexpectedly leapt from 1.6% to 1.9% in March, a whisker away from the Government-set ceiling of 2%.
However, a series of data has since pointed to a weak manufacturing sector and increasingly indebted consumers reluctant to spend on the High Street.
Figures out this morning highlighted the point. The Office for National Statistics said manufacturing production fell by 1.6% in March. Outside of June 2002, when factories shut down to celebrate Queen Elizabeth's jubilee, output had not fallen so much in a decade.
The latest British Retail Consortium-KPMG Retail Sales Monitor is expected to show tonight that like-for-like sales in shops over April fell by around 3%, compared with the previous year. It is the largest year-on-year decline since April 1999.
Economists, most of whom at the beginning of the year warned of a raft of rate rises in 2005, are now divided on the future for rates. Howard Archer, economist at research firm Global Insight, now expects rates to remain on hold for most of the summer. 'We believe that the MPC will stay on the sidelines until it has a clearer idea whether the economy is just going through a temporary soft patch, or whether it seems to be the start of a sustained slowdown in activity,' he said.
Industry leaders welcomed the Bank's decision. David Frost, director general of the British Chambers of Commerce, said: 'Given the underlying risks facing UK businesses, and manufacturing in particular, we strongly urge the MPC to persevere with a cautious stance and keep interest rates on hold for the next few months, until the situation is clearer. The MPC should reject forcefully calls for early increases.'
The MPC delayed its monthly meeting because of the General Election. Its brief is to move rates if it believes there are substantial risks to inflation missing its target of 2% in two years' time.
Economists believe inflation will fall back from its level of 1.9% in March when figures are published for April due to the timing of Easter, which came earlier this year and led a number of retailers and airlines to raise prices.
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