The Bank of England froze interest rates at 4,75% on Thursday for the fifth successive month following recent signs that the United Kingdom economy is losing momentum.
The decision by the central bank’s nine-member monetary policy committee (MPC) came as little surprise to markets.
Shortly afterwards, the European Central Bank in Frankfurt held its key interest rate steady at 2%, where it has been since June 2003.
No change had been expected from either institution.
In Britain, recent data has indicated that five quarter-point hikes in British borrowing costs since November 2003 have taken some of the heat out of the economy, in particular the housing market.
Just hours ahead of the announcement, official data showed that Britain’s manufacturing sector is sliding towards recession once again after an expected rebound in output failed to materialise in November.
Some economists now believe that the next move in British interest rates could even be downwards.
On the eve of the decision, the British Retail Consortium called for a reduction in official lending rates after releasing a survey showing that the country’s retailers endured their worst Christmas in a decade.
”Given the overwhelming softness seen in a majority of recent UK indicators, we believe that the MPC will have totally moved away from the rate hike psychology at this stage,” said Audrey Childe-Freeman, economist at the Canadian Imperial Bank of Commerce.
”In fact, if anything, those MPC members who mentioned downside risks to the inflation outlook at the December meeting would have had their case strengthened by recent anecdotal evidence: a softening economy and easing price picture at the factory gate, as weaker commodity prices bring a disinflationary bias, not to mention the moderating housing sector,” she added.
Data released on Thursday by the National Statistics office showed a surprise 0,1% fall in manufacturing output in November from the previous month, the same as in October.
That means that manufacturing output, which accounts for just more than 17% of British gross domestic product, has fallen for five months in a row.
If December disappoints, then the sector is likely to be technically in recession, which is usually defined as two consecutive quarterly declines in output, economists noted.
Inflation remains relatively subdued in Britain, notwithstanding a rise in the annual rate to 1,5% in November from 1,2% in October.
The increase still left inflation well below the 2% target that the Bank of England is tasked to meet.
As usual when no change is made to the repo rate — the rate of interest at which the Bank of England lends to commercial banks — the central bank gave no explanation for its decision.
Markets will have to wait until January 26 for the minutes of the meeting to gain an insight into policymakers’ thinking. — Sapa-AFP