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Bank expected to keep rates at 5% Bank expected to keep rates at 5%
(about 2 hours later)
The Bank of England is expected to announce it is keeping interest rates at 5% when it meets later - amid growing signs the economy is weakening.The Bank of England is expected to announce it is keeping interest rates at 5% when it meets later - amid growing signs the economy is weakening.
A recent report suggested the UK was at risk of recession, and building firms have laid off thousands of jobs.A recent report suggested the UK was at risk of recession, and building firms have laid off thousands of jobs.
However, city experts believe that with inflation hitting 3.3% last month the Bank will leave rates unchanged. However, City experts believe that with inflation hitting 3.3% last month the Bank will leave rates unchanged.
Meanwhile, accounting firm PWC says it expects higher living costs mean the consumer squeeze will worsen in 2009. Meanwhile, accounting firm PWC expects higher living costs will mean the consumer squeeze will worsen in 2009.
As a result, PricewaterhouseCoopers expects consumer spending to rise by just 0.5% next year.As a result, PricewaterhouseCoopers expects consumer spending to rise by just 0.5% next year.
"The outlook for household spending growth in the UK is looking more subdued now than at any time since the early 1990s," said John Hawksworth from PricewaterhouseCoopers (PWC)."The outlook for household spending growth in the UK is looking more subdued now than at any time since the early 1990s," said John Hawksworth from PricewaterhouseCoopers (PWC).
Tighter household budgets will have an impact on economic growth, PWC said.Tighter household budgets will have an impact on economic growth, PWC said.
It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007. This is expected to fall to 1.25% in 2009 - much lower than the government's current forecasts.It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007. This is expected to fall to 1.25% in 2009 - much lower than the government's current forecasts.
SlowdownSlowdown
The PWC report adds to growing signs of a slowdown in the UK economy:
  • This week a report from the British Chambers of Commerce warned of a serious risk of recession in the UK within months
  • House prices fell for the eighth month in a row in June, according to the Nationwide
  • The Bank of England said the number of mortgage approvals in May was 64% lower than the same time last year
  • The difficult property market has caused major housebuilders such as Persimmon, Taylor Wimpey and Barratts to announce job cuts
  • The output of UK factories, mines and energy generators declined at its fastest rate for more than a year, the Office for National Statistics said this week
The PWC report adds to growing signs of a slowdown in the UK economy:
  • This week a report from the British Chambers of Commerce warned of a serious risk of recession in the UK within months
  • House prices fell for the eighth month in a row in June, according to the Nationwide
  • The Bank of England said the number of mortgage approvals in May was 64% lower than the same time last year
  • The difficult property market has caused major housebuilders such as Persimmon, Taylor Wimpey and Barratts to announce job cuts
  • The output of UK factories, mines and energy generators declined at its fastest rate for more than a year, the Office for National Statistics said this week
'Little scope''Little scope'
Most economists expect interest rates to remain at 5% for the rest of 2008.Most economists expect interest rates to remain at 5% for the rest of 2008.
The Bank of England had cut interest rates at the beginning of the year to try and boost the slowing economy. But growing inflation means the interest rate-setting committee is less likely to do so again.The Bank of England had cut interest rates at the beginning of the year to try and boost the slowing economy. But growing inflation means the interest rate-setting committee is less likely to do so again.
"There is little scope for the Monetary Policy Committee to come to the rescue of either the economy or the housing market with interest rate cuts until 2009," John Hawksworth said."There is little scope for the Monetary Policy Committee to come to the rescue of either the economy or the housing market with interest rate cuts until 2009," John Hawksworth said.
At the MPC's last meeting, they discussed the possibility of raising rates to try and dampen inflation, although none of the members voted for this.At the MPC's last meeting, they discussed the possibility of raising rates to try and dampen inflation, although none of the members voted for this.