07/08/2003

UK interest rates stick at 3.5%

The Bank of England has announced that interest rates will remain at their current level of 3.5%.

Business leaders and the CBI had been calling for the rate to be lowered further due to depressed business confidence in the UK. But weighing up the factors the Bank’s Monetary Policy Committee announced that the rate would hold at 3.5%.

However, the latest figures on the UK economy continue to indicate that the service sector remains relatively buoyant despite continuing decline the manufacturing sector.

Some top analysts think that interest rates have reached their lowest level, and that with the rate at its lowest level in almost 50 years it is inadvisable to lower the lending rate further.

Earlier this week the Halifax reported that the housing sector, generally considered to be overheating due to the low cost of borrowing has seen house prices increase by an average 19% in the last year.

However, despite property prices rising by 1.3% in July there does not appear to be any strong indication that inflationary pressures are growing within the wider economy. A retail sector report published today by the British Retail Consortium showed that shop prices were marginally up by 0.5% on last year and that prices actually fell by 1.1% during July this year.

Despite fears that runaway consumer spending was fuelling inflation the rate of inflation, excluding the effect of mortgage interest, fell by 0.1% in June to reach 2.8%, down from 2.9% in May - well within the inflation target of 2.5%.

(SP)

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