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MPC Set Firm on Rate Hold

In the first meeting of the Monetary Policy Committee of the year, there was overwhelming support amongst the members to keep the base rate of interest unchanged, leaving it at the rate of four and a half percent.

It was not a unanimous vote however, as one of the members, Stephen Nickell, voted as he had in December for a reduction in the rate to four and a quarter percent. The reduction in the rate of inflation and the increase in consumer spending during the run up to the January meeting influenced the other eight members to conclude that the rates should remain unchanged for the fifth month in succession since it was reduced back in August.

The Bank of England is predicting a growth in the country’s economy, which is largely why the decision to hold interest rates was taken, as their primary goal is to maintain inflation at the two percent target.

Following the release of the minutes of the rate setting meeting, there are many who now feel that rates are highly likely to remain unchanged for the rest of 2006, as there were no others supporting Mr Nickell’s calls for a reduction in base rates. With consumer spending seemingly on the rise, and the housing market becoming more lively it is a fair bet that the MPC will continue to hold at the four and a half percent level for the next few months at least, barring any unexpected influences on the economy and consumer price inflation.

The tail end of last year saw the inflation figure hit by increasing energy costs as crude oil rose dramatically in price, and so pushed up prices across the board as haulage companies had to pass on the increase to their customers, and retailers were also faced with increases in their energy bills.

While the energy prices did recede during December, they have recently been rising again, however the MPC decided not to react to this as the beginning of a new year traditionally sees people negotiating their pay, and increases in this will offset any effects in living costs and so the inflation figure should remain largely unaffected.