Interest rate rise "not a done deal"

Posted: 05 Sep 2006 14:21:57 GMT

After August's base rate rise by the Bank of England, many analysts argued that the bank's monetary policy committee (MPC) would raise them again in an effort to lower inflation.

However, experts now claim that this is far from a foregone conclusion and that various factors could signal a non-move by the MPC this month.

Vicky Redwood, economist for Capital Economics, stated: "The minutes to August's MPC meeting indicated that August's interest rate rise was primarily a pre-emptive strike against second round effects, suggesting that another hike is not a done deal.

"We still think rates will stay on hold this year as more signs emerge that economic growth is unlikely to live up to the MPC's expectations. But it is a very close call."

Any sign that inflation is putting pressure on inflation expectations or wage demands would probably see another interest rate increase.

The August rise saw one of the seven members of the MPC vote against a rate hike, so the signs are that there was some disagreement about the decision.

The bank hasn't raised interest rates for two consecutive months in a row since May and June 2004 which sparked a downtrend in the housing market.

First-time buyers' concerns don't appear to be as bad as in 2004, however, and the market has shown steady growth in August despite the interest rate concerns.


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