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| Version 3 | Version 4 |
|---|---|
| Bank keeps UK interest rate at 5% | Bank keeps UK interest rate at 5% |
| (30 minutes later) | |
| The Bank of England has kept interest rates on hold at 5% for a fifth month as it struggles to deal with a slowing economy and soaring inflation. | The Bank of England has kept interest rates on hold at 5% for a fifth month as it struggles to deal with a slowing economy and soaring inflation. |
| But with reports signalling the economy is heading for recession, expectations are rising that rates may have to be cut either this year or early in 2009. | |
| Economic growth ground to a halt in the second quarter of this year, the worst performance since the early 1990s. | Economic growth ground to a halt in the second quarter of this year, the worst performance since the early 1990s. |
| However, inflation is more than double the Bank's target of 2%. | However, inflation is more than double the Bank's target of 2%. |
| Ian McCafferty, CBI chief economic adviser, said the Bank's Monetary Policy Committee (MPC) decision shows that it is still concerned about inflation, which is likely to rise to around 5% in coming months. | |
| "But as the autumn unfolds, the chances of a rate cut will increase, as the slowdown improves the inflation outlook for next year," he said. | "But as the autumn unfolds, the chances of a rate cut will increase, as the slowdown improves the inflation outlook for next year," he said. |
| Some analysts reckon that rates could fall as low as 3.5% next year. | Some analysts reckon that rates could fall as low as 3.5% next year. |
| 'Depressing decision' | 'Depressing decision' |
| With house prices tumbling and High Street confidence brittle, pressure is growing on the MPC to act sooner rather than later. | With house prices tumbling and High Street confidence brittle, pressure is growing on the MPC to act sooner rather than later. |
| All good things come to an end, and, unfortunately, UK growth is no exception Stuart Porteous,head of group economics at RBS. Car registrations at 1966 lowHouse prices post double-digit drop | |
| UK house prices recorded an annual fall of 10.9% in August, according to the latest figures from Halifax. | UK house prices recorded an annual fall of 10.9% in August, according to the latest figures from Halifax. |
| TUC Head of Economics and Social Affairs Adam Lent said with a recession on the cards, inflation was no longer the main threat to the economy. | TUC Head of Economics and Social Affairs Adam Lent said with a recession on the cards, inflation was no longer the main threat to the economy. |
| "This is a depressing decision," he said. | "This is a depressing decision," he said. |
| "A cut today would have offered hope to all those who fear for their jobs and homes, and helped cut through the economic pessimism that is now doing as much damage as the credit crunch and energy prices." | "A cut today would have offered hope to all those who fear for their jobs and homes, and helped cut through the economic pessimism that is now doing as much damage as the credit crunch and energy prices." |
| Gloomy reports | Gloomy reports |
| The OECD has forecast that the UK economy will contract in the current quarter and the next - meeting the official definition of a recession. | The OECD has forecast that the UK economy will contract in the current quarter and the next - meeting the official definition of a recession. |
| This chimes with the Bank of England's own forecast. Governor Mervyn King said last month the UK economy would go through a "difficult and painful adjustment" with "broadly flat" growth. | This chimes with the Bank of England's own forecast. Governor Mervyn King said last month the UK economy would go through a "difficult and painful adjustment" with "broadly flat" growth. |
| Chancellor Alistair Darling heightened concerns about the resilience of the economy when he said recently that conditions facing the UK and other countries were "arguably the worst in 60 years". | Chancellor Alistair Darling heightened concerns about the resilience of the economy when he said recently that conditions facing the UK and other countries were "arguably the worst in 60 years". |
| The gloomy forecasts about the economy have hit the pound, which has been falling against the dollar and the euro, and has had its worst month against the US currency since 1992. | The gloomy forecasts about the economy have hit the pound, which has been falling against the dollar and the euro, and has had its worst month against the US currency since 1992. |
| However, sterling regained some poise on Thursday, clawing back some ground against the dollar and the euro. | However, sterling regained some poise on Thursday, clawing back some ground against the dollar and the euro. |
| Voting split | Voting split |
| A three-way voting split on the MPC in recent months has highlighted the difficulties facing the body in the current troubled climate. | A three-way voting split on the MPC in recent months has highlighted the difficulties facing the body in the current troubled climate. |
| David Blanchflower has persistently called for rate cuts to support the faltering economy and has warned of a sharp jump in unemployment if no action is taken. | David Blanchflower has persistently called for rate cuts to support the faltering economy and has warned of a sharp jump in unemployment if no action is taken. |
| Inflation is being driven by factors such as higher food costs | |
| However, another external member of the MPC, Tim Besley, remains more hawkish, urging a rise in rates to contain inflation which many experts believe could soon hit 5%. | However, another external member of the MPC, Tim Besley, remains more hawkish, urging a rise in rates to contain inflation which many experts believe could soon hit 5%. |
| While the other seven members of the MPC have voted for rates to stay on hold for several months, many experts believe they will not be able to hold this line for much longer. | While the other seven members of the MPC have voted for rates to stay on hold for several months, many experts believe they will not be able to hold this line for much longer. |
| "All good things come to an end, and, unfortunately, UK growth is no exception," said Stuart Porteous, head of group economics at RBS. | |
| "After the economy broke its astonishing winning streak of 15 years of continuous growth this summer, the next UK rate move will almost certainly be down. But not just yet. | |
| "The MPC looks set to keep rates on hold until it is unambiguously clear that inflation has passed its peak - and that probably won't happen until early in 2009." |