Interest Rates Held at 5% by Bank of England

The UK Bank of England held the base rate of interest at 5% despite worries over increased inflation.

With the prospect of a recession in the UK the bank had to balance the risk of dampening the economy too much if they raise interest rates and also kill off a very weak housing market but also keep in mind that their only weapon in fighting inflation is interest rates.

The holding of the rate was widely expected as they know if they reduced interest rates in an attempt to give the economy a boost they risk inflation getting out of control. So they are between a rock and a hard place in this respect.

Of course many people want to see interest rates reduced to kick start the economy even though the recent 10 years of growth (plus 3 from the previous conservative government) were largely based upon massive government borrowing, huge tax increases and a virtual tripling of house prices which allowed consumers all kinds of luxuries they wouldn’t be able to afford.

The past 10 years will not happen again for an economy this generation and interest rates would need to fall dramatically to improve confidence and allow consumers to spend more. Even so, 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,”

Perhaps it’s time for some tough medicine for the UK population in that they can’t simply carry on spending at will ?

Posted in Business | 1 Comment »

One Response

1. David Morson Says:

   A really tough time for the Bank of England but this way of keeping interest rates high to fight inflation is only a temporary solution. Something else must be done to control the inflation.

Add your Comment