Bank holds interest rates amid fears of recession

Published on Thursday 4 September 2008 22:11

THE Bank of England kept interest rates on hold for the fifth month in a row yesterday despite the looming threat of recession.

Stagnating economic growth, record house price falls and the struggling manufacturing, construction and services sectors were not enough to cause the Monetary Policy Committee (MPC) to cut rates from their current level of 5 per cent.

But with inflation currently running at 4.4 per cent, more than double the MPC's 2 per cent target, and expected to hit 5 per cent in the coming months, rates are not likely to be cut until November at the earliest.

The furore surrounding Chancellor Alistair Darling's gloomy comments on the UK's prospects has also helped to send the pound plunging against the dollar and the euro, further adding to inflationary pressures.

Howard Archer, Global Insight's chief UK and European economist, said: "Despite the very real danger of recession, it was always likely to prove premature for the Bank to cut interest rates, given well-above-target and rising inflation, still significant medium-term inflation risks and the weakness of the pound."

However, fears that the UK is heading for recession are continuing to grow after official figures showed that economic growth stalled between April and June.

The Organisation for Economic Co-operation and Development (OECD) also predicted earlier this week that the UK would be the only major economy in the G7 nations to fall into recession this year.