On Thursday 10th April, the Bank of England’s Monetary Committee will set the Bank Base rate against an extremely difficult economic background. The Committee is charged with ensuring monetary stability and of keeping inflation within 1% of the 2% annual target level.
The fault lines in the economy are likely to make this month’s decision as [...]
On Thursday 10th April, the Bank of England’s Monetary Committee will set the Bank Base rate against an extremely difficult economic background. The Committee is charged with ensuring monetary stability and of keeping inflation within 1% of the 2% annual target level.
The fault lines in the economy are likely to make this month’s decision as difficult as it has ever been. Inflation, by whatever measure, is likely to show a rise in March under pressure from fuel and some food price increases, while house prices look as if they are coming down while mortgage rates are going up.
The reluctance that banks are showing to lend to each other is reflected in the LIBOR rate, which for 3 months, is just over 6%, which is 0.75% above base rate, compared with a typical spread of 0.25% to 0.50% above base rate for much of the first half of 2007.
It looks as if financial institutions are making their decisions about lending rates and lending decisions in the light of their own particular circumstances and are not being influenced too much by what may happen to the Bank of England base rate.
In the current economic conditions, trying to manage the economy by moving interest rates is looking increasing like a measure that has passed its sell by date. A cut in the rate will encourage inflation but is unlikely to influence mortgage rates and keeping the rate the same will just prolong the current status quo. A rise in the rate will potentially choke off even more demand and make the outlook for growth and jobs that much more dismal.
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