The Bank of England’s Monetary Policy Committee voted 9-0 today to keep interest rates on hold.
The MPC cited August’s inflation report, which showed the consumer price index had fallen back to below the Government’s 2% target. It stated that consumer spending showed ‘tentative signs’ of slowing, whilst pay pressures remained ‘muted’, although the committee did point to indications of elevated pricing pressures (for more on rising prices, read: Why now is a good time to invest in food).
Although the Bank acknowledged recent disruption in world markets, it stressed that its mandate is to meet the Government’s 2% CPI target – and that it had discussed money market turmoil only in terms of how it related to economic growth and inflation.
The Bank added: “It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households.”
Until the beginning of August, most pundits were agreed that rates would hit 6% this year, but the credit crunch had made this appear less likely. As the subprime crisis unfolds, banks have become increasingly reluctant to lend to one another, pushing money market rates to their highest levels since 1998.
The Bank yesterday took its first steps to lower inter-bank lending rates, although it added that investors should expect no further action to boost liquidity (see: Banks take another battering).
However, the British Chamber of Commerce called for firm reassurances that further hikes were ‘off the agenda’ for the time being.
The minutes of today’s meeting will be published on Wednesday 19th September.