Rates Unchanged For Tenth Month Running 09/06/2005

The Bank of England left the interest rate at 4.75% today for the tenth month in a row amid fears of a rapidly weakening economy. Many experts now believe that a rate cut is inevitable later on in the year.

The Monetary Policy Committee (MPC) made the unsurprising decision to leave the rate at 4.75%, just as economists had predicted, following recent data regarding consumer sales and house prices. Reports released this week showed that retail sales were down in May and house prices had also fallen from April to their lowest level for four years.

An increasing number of economists are predicting a rate cut later in the year, with some believing this will happen as soon as August. Howard Archer, the chief UK economist at the consultancy Global Insight, said: "We believe that further below trend growth over the next few months will erode the Bank of England's concern over the medium-term inflation risks and prompt an interest rate cut around October. We suspect that the MPC will be reluctant to move before then, due to the risk that growth could pick up over the summer and fuel potential inflationary pressures stemming from the lack of an output gap and tight labour market."

David Brown, chief European economist at Bear Stearns, agreed with this statement, saying: "The pendulum is swinging to lower rates in the UK. I think we should be heading for a rate cut by late summer."

The MPC revealed that that they believed the weakening of UK consumer spending, along with the persistent property market slowdown posed a significant risk to its economic forecasts, and feared that the consumer slowdown was more than a just a blip. Speaking two weeks ago, MPC member Richard Lambert said: "The tales of gloom from the high street and from other consumer sectors are too consistent to suggest that what we have seen so far is just a statistical aberration."

British retailers seem more concerned as they continue to resort to sales days and discounts in order to tempt the consumer to open their purses. The British Retail Consortium said there was little change in the tough trading environment seen earlier this year, leading some members to warn of a consumer-led recession earlier in the week, to try and encourage a rate cut.

Meanwhile, inflation has remained under the 2% target of the MPC, staying at 1.9%. The MPC expects inflation to rise in the short-term before reducing again.