The Bank of England has voted to leave interest rates unchanged at 5.75% today, despite signs that the UK economy is weakening and the decade-long housing boom is coming to an end. It’s the fourth month running the Bank’s nine-member Monetary Policy Committee have decided to keep rates at the six-year high.
Most analysts had expected the Bank to keep rates on hold. The majority also believe that the next move will be a rate cut, in line with the US Federal Reserve’s decision to slash rates by 0.75% to 4.5% in the last two months.
“I suspect that more than one voted for an immediate reduction in Bank Rate”, said Ian Kernohan, Economist at Royal London Asset Management (RLAM) in a note to clients. “Further weakness in the data and growing concern about the fallout from the credit crunch should be enough to provoke a rate cut next month: expect next week¹s Inflation Report to signal that the next move is down.”
The decision came as the latest housing survey from Halifax, the UK’s biggest mortgage lender, showed that house prices have dropped for a second month in a row. Figures from Halifax show a 0.5% drop last month after a 0.6% fall in September. Annual price growth slipped from 10.7% in September to 8.9%.
Banks are becoming more reluctant to lend money amid the fall-out from the worsening US mortgage crisis, leading to a drop in mortgage approvals in September. Meanwhile, figures from the Office for National Statistics showed a sharp drop in manufacturing output between August and September.
However, inflationary concerns could well cause headaches for the Bank. Consumer price inflation in September remained at 1.8%, below the 2% target set by the MPC. But with oil touching $100 a barrel, and food and commodity prices continuing to rise, CPI may not remain benign for long.
See also: ECB holds rates despite inflation risks