Workers Revolutionary Party

Bank Hints At Rate Rises To Come

Gate Gourmet workers campaigning against their sacking by venture capitalist Texas Pacific at the recent TGWU biennial conference

Gate Gourmet workers campaigning against their sacking by venture capitalist Texas Pacific at the recent TGWU biennial conference

‘It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households,’ said the Bank of England (BofE) yesterday.

The Bank took the unprecedented step of issuing an immediate statement hinting at higher interest rates to come, with its decision to keep interest rates on hold for the next month.

The statement said: ‘The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 5.75 per cent.

‘In its August Inflation Report, the Committee’s central projection was for inflation to remain close to the 2 per cent target over the forecast period and for output growth to ease, reflecting a slowing in both consumer spending and business investment.

‘In recent weeks, heightened concerns about a variety of asset-backed securities have led to disruption around the world, not only in markets for those financial instruments but also in money markets more generally.

‘The MPC’s mandate is to set interest rates to meet the government’s 2 per cent target for CPI inflation.

‘So the Committee discussed these developments and other economic data in terms of their implications for the outlook for inflation.

‘CPI inflation fell back to 1.9 per cent in July and may remain around, or a little below, the 2 per cent target for the next few months.

‘Pay pressures remain muted. There are tentative signs of a slowing in consumer spending.

‘But the recent solid pace of output growth has been sustained and the margin of spare capacity appears limited. Indicators of pricing pressure remain somewhat elevated.

‘It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households.

‘As stated in its August Report, the MPC is monitoring closely the evolution of both credit spreads and the quantities of credit extended, alongside all other data relevant to the outlook for inflation.

‘Against that background, the Committee judged that no change in Bank Rate was necessary at this meeting to keep inflation on track to meet the target in the medium term.’

The British Chambers of Commerce (BCC) criticised the rates decision.

BCC economic adviser David Kern said: ‘Simply keeping rates on hold today is not enough, if the decision is interpreted as a mere short-lived postponement.

‘The MPC must acknowledge that further interest rate increases should now be off the agenda, at least for the time being.’

The European Central Bank (ECB) yesterday afternoon also kept interest rates on hold at 4 per cent.

In a ‘quick tender’ that provided funds to commercial banks for one day, the ECB made 42.24 billion euros (57.4 billion dollars) available at a marginal, or lowest, rate of 4.06 per cent and a weighted average rate of 4.13 per cent, the bank said.

Four days earlier, the ECB had pumped a record amount of 94.8 billion euros into the markets.

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