UK Interest Rate: 5.00%

UK Interest Rates Forecast: Rates increasingly likely to fall

Bank Holds Interest Rates Again In August

The Bank of England left interest rates unchanged at 5% for a further month in August. The decision was widely expected but left some commentators questioning whether the bank was taking too much of a laissez-faire attitude to controlling inflation and relieving the credit crisis.

Reuters Poll Shows No Change Expected

A poll of 67 economists by Reuters found that all 67 expect the Bank of England Monetary Policy Committee to leave interest rates unchanged when they meet at the beginning of September.

Of the 67 economists polled, 33 expected a cut sometime in 2008 while the remainder believed that the base rate will remain unchanged until sometime in 2009. Another Reuters poll published in August found that a 0.25% cut was expected early in 2009 with further cuts to follow until rates reached a floor of 4.25% in Q3 of 2009.

BoE MPC Minutes Show Another 3-Way Split

The MPC were divided in a rare three-way split when they voted on interest rates in August. Previously almost unheard of, this is the second consecutive month when different committee members have voted for a rise, fall and for no change to interest rates.

The minutes from the meeting state that "a case could be made for an immediate increase, for a cut or for maintaining Bank Rate at the current level." They also note that each option had "identifiable risks."

However, a majority of seven members judged that "the current stance of monetary policy was broadly appropriate". When put to the vote the result was that the Bank Rate was held at 5% for a further month.

The next MPC meeting is on the 3rd and 4th of September.