Bank may increase interest rates this month

06 August 2008

Recent economic slump may cause MPC to up rates

Today, the Bank of England Monetary Policy Committee (MPC) began its monthly two-day meeting and is set to face one of its hardest interest rates decisions to date.

Meanwhile, analysts have warned that the MPC may increase interest rates because they are struggling with rising inflation.

Reuters conducted a poll of 76 analysts and the majority predicted that the MPC would leave rates at 5.0% in August, for the fourth month in a row. However, some talked of the possibility of a rise in rates.

Vicky Redwood at Capital Economics said: “I think there’s not an insignificant chance of an interest rate rise, primarily because the quarterly inflation report is out this month and one member of the MPC has said that it is a good time to explain a rate rise.

“With inflation rising, a hike this month could be one last signal from the Bank of its commitment to bring inflation down. While I predict a no-change tomorrow, a move in rates is not inconceivable.

“If they are to move, it’s more likely to go up than down,” she predicted.

A substantial number of analysts are expecting another stand-off from MPC members after last month’s meeting, which saw seven of the nine members voting to keep rates at 5.0%, but one member voting for an increase and one voting for a decrease.

Redwood added: “The MPC have been caught between rising inflation and slowing growth and the battle between the two has been getting more intense over the past few months. Now it’s going to be the worst it’s ever been.”

The Bank of England will announce the MPC’s decision on Thursday 7 August.