BoE Leaves Rates Unchanged At 5.00%

The Bank of England left their benchmark interest rate unchanged at 5.00% as inflation concerns continue to override a slumping economy. Governor King has continued to maintain that as long as inflation remains near or above the 3% threshold, the MPC will refrain from further easing. However, the downside risks to the economy continue to mount as the credit crunch weighs down the housing sector which saw prices fall to a fifteen year low, according to HBOS. Also, mortgage approvals fell to its lowest level in at least nine years despite the recent efforts of the central bank to infuse liquidity into the market. The U.K. economy grew at the slowest pace since 2005 in the first quarter as construction and business services slowed. The second quarter has continued the downward trend as retail sales in April fell 0.2%, manufacturing stagnated and services contracted. Adding to the dour outlook, the OECD lowered its growth outlook for the economy to 1.8% from 3.0% last year. The central bank may need to abandon their focus on price stability if the country continues to slide toward a recession.

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