Interest Rates Held at 5%

The Monetary Policy Committee have today announced plans to hold the Bank of England base rate at 5% for another month in an attempt to balance the risk of rising inflation against the impact of fragile financial conditions on the UK’s economy.

Although the announcement was largely anticipated by the economic community many feel that a quarter percent drop would have been beneficial in bolstering consumer confidence and boosting sluggish market conditions.

This is particularly the case in view of the negative outlook provided by a series of reports released over the past fortnight.

Several reports suggested that the property market has stalled almost completely with property sales down by 26%, house price growth taking a negative turn and gazundering (whereby the buyer demands a last minute drop in sale price before contracts are exchanged) once again becoming common place. However, data suggests that this isn’t the only area that is experiencing a slowdown.

Services industries are feeling the squeeze after experiencing their slowest growth for five years this April as rising costs capped the potential for profit. Additionally, data also unexpectedly revealed that British manufacturing industries are not exempt from the crunch after output fell by 0.5% in March, marking its steepest decline in half a year.

However, while a rate cut would have arguably eased pressure on the struggling financial market, the recent steep increases in fuel, food and energy prices have kept inflation above target with the CPI (Consumer Price Index) remaining at 2.5%, half a percent above the governments 2% objective.