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Bank holds interest rates at 5% Bank holds interest rates at 5%
(20 minutes later)
UK interest rates have been kept on hold at 5% by the Bank of England following its latest meeting.UK interest rates have been kept on hold at 5% by the Bank of England following its latest meeting.
The decision had been widely expected, despite calls from businesses groups to cut borrowing costs amid growing concerns about the economic slowdown.The decision had been widely expected, despite calls from businesses groups to cut borrowing costs amid growing concerns about the economic slowdown.
A recent report suggested the UK was at risk of recession, and building firms have laid off thousands of jobs.A recent report suggested the UK was at risk of recession, and building firms have laid off thousands of jobs.
However, the Bank was not expected to cut rates with inflation currently at 3.3%, above the 2% target rate.However, the Bank was not expected to cut rates with inflation currently at 3.3%, above the 2% target rate.
Inflation worries
The Bank's Monetary Policy Committee (MPC) has had to balance growing evidence of an economic slowdown against the problem of rising inflation.The Bank's Monetary Policy Committee (MPC) has had to balance growing evidence of an economic slowdown against the problem of rising inflation.
"A crescendo of weaker news on the real economy has rightly in our view quashed expectations of monetary overkill," said analyst John Higgins at Capital Economics."A crescendo of weaker news on the real economy has rightly in our view quashed expectations of monetary overkill," said analyst John Higgins at Capital Economics.
But business groups said the Bank should be ready to cut rates swiftly if further signs of slowdown emerge.But business groups said the Bank should be ready to cut rates swiftly if further signs of slowdown emerge.
"If further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again," said Lee Hopley, economist at the manufacturing body EEF."If further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again," said Lee Hopley, economist at the manufacturing body EEF.
Meanwhile, Ray Boulger, of mortgage adviser John Charcol, said the MPC's decision was widely expected but the central bank was now under pressure to try to revive the economy.
"With the economic news from nearly all sectors of the economy getting worse by the day, a rate cut is badly needed to help restore some confidence to consumers and reduce the financial pressure on both them and industry," he said.
Earlier on Thursday, a report from accounting firm PricewaterhouseCoopers said higher living costs would mean that the consumer squeeze will worsen in 2009 and dent economic growth.Earlier on Thursday, a report from accounting firm PricewaterhouseCoopers said higher living costs would mean that the consumer squeeze will worsen in 2009 and dent economic growth.
It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007.It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007.
SlowdownSlowdown
Many expect interest rates to remain at 5% for the rest of the yearMany expect interest rates to remain at 5% for the rest of the year
There are growing signs of a slowdown in the UK economy: class="bulletList">
  • House prices fell for the eighth month in a row in June, according to the Nationwide
  • Recruitment firm Hays said wider global economic issues were starting to affect the UK permanent job market
  • A report from the British Chambers of Commerce warned of a serious risk of recession in the UK within months
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    • The Bank of England said the number of mortgage approvals in May was 64% lower than the same time last year
    • The difficult property market has caused major housebuilders such as Persimmon, Taylor Wimpey and Barratt to announce job cuts
    • The output of UK factories, mines and energy generators declined at its fastest rate for more than a year, the Office for National Statistics said this week
    		Among the growing signs of a slowdown in the UK economy are:
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    • The UK's biggest mortgage lender the Halifax suggesting house prices were 6.1% lower in June than a year ago
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    • Recruitment firm Hays warning that wider global economic issues were starting to affect the UK permanent job market
      class="bulletList">
    • A report from the British Chambers of Commerce warning of a serious risk of recession in the UK within months
    At the MPC's meeting last month, they discussed the possibility of raising rates to try to dampen inflation, although none of the committee's nine members voted for this.At the MPC's meeting last month, they discussed the possibility of raising rates to try to dampen inflation, although none of the committee's nine members voted for this.