Sky News Online - Base Interest Rate And Money Supply On Hold
Tesh SharifManager of Communications
Base Interest Rate And Money Supply On Hold
Sky News Online - 14 Jan 2011 - by James Sillars
The base rate of interest has been kept on hold for a 22nd consecutive month by the Bank Of England's Monetary Policy Committee.
It means the record low bank rate of 0.5% is maintained.
There was also confirmation that there would be no extension of quantitative easing to boost money supply.
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The decision not to raise rates was expected, despite soaring inflation and commodity prices which are set to feed into the market place.
The Government's target measure of inflation - the consumer prices index - hit 3.3% in November, driven by the rising cost of food, clothes and oil.
Most members of the Monetary Policy Committee (MPC) are banking on these pressures being a problem in only the short-term.
But MPC member Andrew Sentance has voted in the past for a rise in the base rate to help combat those rising prices.
The main issue with that course is an interest rate rise would risk slowing economic recovery and force up most homeowners' mortgage repayments at a time when pay increases are not keeping up with inflation.
The rising cost of living was the issue which dominated the thoughts of the Sky News Money Panel going into the latest decision.
The experts, drawn from across the financial and business communities, predicted that inflation would continue to rise in the coming months, possibly reaching 4.5%.
Factors that were cited included the increase in VAT and commodity prices, coupled with a weak sterling adding to the cost of imported goods.
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Panel's Predictions For Peak Inflation
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:: 4.5% Lord Digby Jones
:: 4.3% Nick Parsons, NAB
:: 4.25% James Caan
:: 4.1% Average Prediction
:: 4.0% George Bull, Baker Tilly
:: 3.8% David Kern, BCC
:: 3.7% Bronwyn Curtis, HSBC
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Most panellists predict a rise in the base rate later this year but believe the bank should signal such an intention early, to help prepare businesses and consumers.
HSBC global research head Bronwyn Curtis warned of the risks of a rate hike, or its intention, being misinterpreted.
'The MPC needs to evaluate the impact of the looming public sector job cuts, rising tax burden and weak housing market conditions to make sure the economy can withstand a series of rate hikes to 'normalise' interest rates,' she said.
Entrepreneur James Caan agreed: 'The interpretation of figures is like doing an elbow test on the water before entering a hot bath - if you enter too early without proper risk assessment, due diligence and due care, there is a strong likelihood of getting scalded.'
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