|
(CEP News) - Soaring inflation and weakening growth threatening to push the economy into recession were insufficient to sway the Bank of England from its monetary policy stance on Thursday as the bank held the benchmark 5.00% interest rate unchanged.
The last interest rate move by the BOE was on April 10, when the bank delivered a 25bp cut. Nevertheless, the move was fully anticipated by economists and most market participants ahead of the meeting, given fragmentation among the Monetary Policy Committee (MPC) on July 9 and 10 when two dissenters voted in opposite directions on interest rates. "Not only was the overall vote more hawkish than expected at the July meeting, but the tone suggested that other members may have considered a rate hike as well," said a UBS report prior to the rate decision. "Most members felt that the risks to near-term as well as medium-term inflation had risen - in the near term, because of gas and electricity price hikes, and in the medium term, because of rising inflation expectations." On April 30, annual inflation hit the 3.0% mark, the upward threshold of the Bank of England's inflation limit, before soaring to 3.8% on July 15. However, the move in prices appeared to have been expected by the BOE, which said inflation was likely to temporarily rise above 4.0% in 2008 in its June 26 report. On July 14, Bank of England Governor Mervyn King said in the bank's annual report that the MPC can have little impact on the path of inflation in the short term. "It has not attempted to prevent inflation moving away from the target following the sharp rises in commodity prices. To do so would have required a large increase in interest rates with such a severe impact on output and employment that it would have risked inflation falling well below target further out," he added. Looking ahead, markets will be paying attention to the Bank of England's quarterly inflation report on Aug. 13 and monetary policy committee minutes on Aug. 20 to see whether the recent sharp declines in crude oil prices will shift away some of the recent hawkish sentiment. By Erik Kevin Franco,
This email address is being protected from spam bots, you need Javascript enabled to view it
, edited by Nancy Girgis,
This email address is being protected from spam bots, you need Javascript enabled to view it
CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News. A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer. |
