LONDON, Sept 5: The Bank of England decided on Thursday to hold interest rates steady at a 38-year low of four per cent amid fears that equity market fragility could trickle into the housing and retail sectors.
It marked the 10th straight month that the bank’s main lending rate has sat at four per cent, a level last seen in January 1963.
The decision to leave the rates unchanged was widely expected by economists because of weak stock market prices and a cloudy outlook for the global economy.
HSBC economist John Butler said after the decision: “The domestic economic data looks robust but the equity market still looks fragile and global uncertainties persist.”
Ian McCafferty, chief economic advisor at the Confederation of British Industry (CBI) added: “The global economic recovery is in danger of losing momentum and UK consumers are now pulling in their horns.
The Institute of Directors (IoD), a leading British employers’ organization, also backed the decision, and said it expected the bank’s Monetary Policy Committee (MPC) to ease rates slightly before the end of the year.
“We welcome today’s unchanged interest rates, especially as the stock markets are so jittery at present,” said Ruth Lea, head of the IoD’s policy unit.
There was no pressure for monetary authorities to raise borrowing cost at this stage as there are no clear indications that a strong, sustainable recovery had set in, Lea added.
“On the contrary there are signs that economic recovery is faltering both domestically and in our main markets,” she said, adding there were increasing signs both the housing market and consumer spending are easing.
British Chamber of Commerce acting director general David Frost added: “Growth forecasts have been revised downwards and businesses currently face a risky environment.
“In this uncertain economic climate we urge the MPC members to give due weight to the needs of businesses and keep the costs of borrowing low.”
The bank last changed its main lending rate on November 8, when it slashed the rate by 0.5 percentage points to four per cent.
The central bank cut rates by a cumulative 100 basis points following the September 11 attacks on the United States last year in an attempt to shore up British economic expansion.
—AFP