Bank of England - Base rate held at 5%

King holds back rate cut

As expected the Bank of England has opted to keep base rate on hold at 5%. Indeed, last week only 5 of 65 economists polled by Reuters were forecasting a rate cut.

Despite a recent stream of downbeat economic data - including a service sector grinding to a virtual standstill and manufacturing output staging an unexpected fall - the Bank's interest rate setting committee will have taken note of crude oil prices hitting an all-time high.

It will also have been mindful of the fact that the markets could have miscnstrued the sanctioning of back-to-back rate cuts as evidence it had taken its eye off the inflation ball.

That said, the economy is well and truly in the grip of a credit squeeze as mortgage lenders tighten their lending criteria, or even withdraw some of their loans altogether. This in turn will likely impact an already weakening housing market and lead to consumers eventually reigning in their spending as confidence in the economy dives.

Minutes from today's meeting - due out later this month - will make for more interesting reading than usual as those committee members opting for the status quo lay out their reasons why no action has been taken, despite the economic gloom.

08 May 2008 © Moneyextra.com

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