The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 5.75%. In its August Inflation Report, the Committee’s central projection was for inflation to remain close to the 2% target over the forecast period and for output growth to ease, reflecting a slowing in both consumer spending and business investment. In recent weeks, heightened concerns about a variety of asset-backed securities have led to disruption around the world, not only in markets for those financial instruments but also in money markets more generally. The MPC’s mandate is to set interest rates to meet the Government’s 2% target for CPI inflation. So the Committee discussed these developments and other economic data in terms of their implications for the outlook for inflation. CPI inflation fell back to 1.9% in July and may remain around, or a little below, the 2% target for the next few months. Pay pressures remain muted. There are tentative signs of a slowing in consumer spending. But the recent solid pace of output growth has been sustained and the margin of spare capacity appears limited. Indicators of pricing pressure remain somewhat elevated. It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households. As stated in its August Report, the MPC is monitoring closely the evolution of both credit spreads and the quantities of credit extended, alongside all other data relevant to the outlook for inflation. Against that background, the Committee judged that no change in Bank Rate was necessary at this meeting to keep inflation on track to meet the target in the medium term. The minutes of the meeting will be published at 9.30am on Wednesday 19 September.
The CML welcomed today's decision by the Bank of England's monetary policy committee to leave rates unchanged at 5.75%. Commenting on the decision, the CML's Director General Michael Coogan said: "Credit conditions have tightened since the rate went up in July, and a further increase would have added to the liquidity problems we are already seeing in some sections of the market. At the same time, there is now much clearer evidence that the cumulative effect of five rate rises since last August is slowing activity in the housing market. The Bank is right to wait and see, and if market conditions produce a further tightening of credit, it will strengthen the case that the next decision should be that rates go down, not up."
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