Interest Rates Kept at 5%
On opposing sides of the argument to cut or maintain interest rates were the Home Builders Federation, calling for a half point cut to 4.5%, arguing that the continued slowdown in the housing market could be avoided by such a cut and the British Retail Consortium supporting the move to leave the rates unchanged.
After the cut to 5% in April this is the second month in a row that the Monetary Policy Committee has held the interest rate due to inflationary pressures. Inflation rose to 3% in April, well above the government’s target and Gordon Brown’s Golden Rule of an inflationary figure of 2%.
In Europe today, the European Central Bank also kept rates at 4%. The Eurozone’s interest rate has remained steady for 12 months in a row. Eurozone inflation due to fuel & food costs is also high at 3.6%, above the Euro target of 2%.
On Tuesday in the US the head of the Federal Reserve, Ben Bernanke, also signalled there would be no more rate cuts, following concerns about inflation over the pond. Some analysts have blamed the severe recent US rate cuts for contributing to the global surge in oil prices. The weakening dollar has resulted in increases in foreign demand for goods such as oil which are priced in dollars.