The last time the Bank of England's Monetary Policy Committee (MPC) voted to change the UK's official Repo Rate was back in March 2009 when they cut it to just 0.5%. There are plenty of City Economists who expect it to remain at this level for the rest of 2010. However, one external member of the MPC (Andrew Sentance) recently suggested "A lot can happen in a year" and therefore it would be wise not to assume that interest rates will remain on hold for the year ahead. Indeed it is not impossible that pressure will build during the Spring for the MPC to act in response to rising inflationary pressures. These could mount against the background of rising commodity prices (especially oil), the sharp depreciation in the pound and a return to positive economic growth. The risk is that the MPC moves too soon as a sudden and sharp tightening in monetary policy could damage the recovery. It is going to be a fine balancing act for the MPC. Act too soon and they will be blamed for taking the UK back into recession while if they act too late there could be a serious spike in price inflation. It will be fascinating to see which members of the MPC will be brave enough to be the first ones to break the current consensus. A few members might soon be voting for higher UK interest rates. Remember you can see the minutes of these meetings and all the votes by going to: http://www.bankofengland.co.uk/monetarypolicy/overview.htm
Happy Reading!
Jan 15, 2010
The next move in UK interest rates?
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2 comments:
I think reduced interest rates after 9/11 was one of the reasons why the current recession happened. It provided banks and other FIs with huge cheap money access to practice activities not in favor of the customers of the banks but for their managers' benefits. Therefore it is crucial to adjust the interest rates at the right time.
well, considering the dilematic situation faced by the MPC... in my opinion, since it is evident UK is showing signs of coming out of recession, it would be better to maintain the interest rate to its current figure of 0.5% as any changes may severely affect the economy and could eventually slow down the economic growth.
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