BoE Leaves Rates Unchanged On Inflation Concerns

The BoE left their benchmark interest rate unchanged at 5.00%, in order to gauge inflation risks. The central bank has been concerned with inflation breaching its 3% threshold, which requires Governor King to write a letter of explanation to Chancellor Alistair Darling. Inflation stands at 2.5% far above the desired 2% target, as record oil and food prices continue to squeeze consumers. Committee member and perennial dove David Blanchflower has recently called for aggressive action in order to avoid a recession. The economy has shown signs of contracting with the services sector reporting its first decline in five years and manufacturing weakening as, the housing woes spread throughout the economy. The housing slump is expected to continue with house prices recording their first yearly drop since 1996, and demand declining as banks continue to tighten lending standards. The BoE’s pause from their easing policy is in order to evaluate past actions including liquidity infusions and three quarter point rate cuts since November. The consensus is that the MPC will cut rates by a quarter point at its June meeting.

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