UK Interest Rate: 5.00%

UK Interest Rates Forecast: Cut to 4.75% possible in June

Bank Rate Stays Fixed At 5%

The Bank of England Monetary Policy Committee announced on Thursday that the base interest rate would remain at 5% in May.

The decision was widely-expected, with most analysts expecting a cut to 4.75% next month, in June. Once again, inflationary pressures were cited as the reason for the decision - with fuel and food prices rocketing and inflation well above its 2% target.

On the other side of the fence, those advocating a rate cut had plenty of ammunition too - but perhaps none so directly relevant to the MPC's primary responsibility of controlling inflation.

Manufacturing output was down 0.5% in March, according to the Office of National Statistics, as was industrial production, which declined 0.2% in the first quarter. Consumer confidence is down 22% on this time last year, according to the latest survey by Nationwide. 60% of those surveyed by the mortgage lender believed that now is not a good time to make a major purchase.

The advocates of rate-cutting will probably have their way next month - but the Bank of England is having to perform a fine balancing act and a lot may change between now and then.

Speaking to The Guardian, chief economist of the Institute of Directors Graeme Leach said he believed that the MPC had made the right decision: "Inflation is far from dead and we cannot be sure as yet whether the economic slowdown underway will be sufficient to bring it under control. By waiting a little longer to reduce interest rates the MPC is hoping to squeeze demand and inflationary expectations a little tighter. Back-to-back interest rate reductions would have given a signal that inflation was yesterday's problem when in reality it is still today's and tomorrow's."