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Bank of england leaves rate 4 5 in september 2005 { September 8 2005 } Original Source Link: (May no longer be active)
http://news.ft.com/cms/s/9edeec64-204e-11da-b59e-00000e2511c8.htmlhttp://news.ft.com/cms/s/9edeec64-204e-11da-b59e-00000e2511c8.html
Bank of England leaves rates unchanged
By Scheherazade Daneshkhu, Economics Correspondent
Published: September 8 2005 12:00 | Last updated: September 8 2005 12:00
The Bank of England left its main interest rate unchanged at 4.5 per cent on Thursday in line with expectations.
The Monetary Policy Committee’s decision was announced at noon without further comment in line with usual practice. All 47 economists polled last week by Reuters expected the decision following last month’s split vote on the quarter-point reduction - the first for two years.
At last month’s meeting, Mervyn King, Bank governor, was outvoted for the first time since the MPC’s inception in 1997, when the four external members sided with Charles Bean, Bank chief economist, in voting for a cut.
“Following the much-needed interest rate cut in August it is natural that the committee should wish to assess the situation before taking further action,” said David Frost, director-general of the British Chambers of Commerce in reaction to the Bank’s announcement. But he urged the MPC to consider another interest rate cut.
“The underlying weaknesses in the economy, both global and domestic, have worsened in recent weeks and the consequences of Hurricane Katrina have magnified the damaging effects of the upsurge in oil and petrol prices. We believe that a further cut in interest rates may be needed later in the year.”
The Organisation for Economic Co-Operation and Development this week reduced its forecast for UK growth from 2.4 per cent this year to 1.9 per cent and gave a nod in the direction of further interest rate cuts.
Jean-Philippe Cotis, the Paris-based organisation’s chief economist, said on Tuesday: “As long as inflation expectations remain well-anchored, higher oil prices seem to call for lower rates than would otherwise have been the case.”
Official data and surveys since last month’s meeting suggest that an end to the economic slowdown is not imminent. Industrial production in the three months to July was unchanged over the previous three months and was 1.7 per cent lower than a year ago, according to official figures released on this week.
Two recent surveys of the services sector point also point to a weaker picture. A survey of purchasing managers compiled by the Chartered Institute of Purchasing and Supply and NTC Research, indicated the services sector was still growing strongly but at rates slower than the pace of expansion last year.
The CBI and Grant Thornton service sector survey pointed to companies being pessimistic on balance about the outlook for the second quarter in a row, although a majority of businesses expected output to grow.
But, with inflation at 2.3 per cent - above the 2 per cent target - the Bank is unlikely to be in a hurry to cut interest rates further. Its latest inflation report, published last month, suggested that any further easing would result in inflation overshooting the target in two years time.
Andrew Smith, chief economist at KPMG, said: “If the recent upturn in inflation proves stubborn, the committee will be reluctant to cut rates further to stimulate demand. But the longer growth stays weak, the greater the risk that rising unemployment pre-empts the autonomous recovery the MPC expects - and needs - to prevent inflation undershooting the target in the longer term.”
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