Bank holds nerve to hold rates

Bank holds nerve to hold rates

Thursday, January 10, 2002

Despite fears that consumer spending went wild this winter, the bank of England Monetary Policy committee has decided to keep interest rates on hold at 4 percent.

The aggressive rate cuts ordered by the MPC in the wake of September 11 appear to have achieved their goal of staving off a slump in confidence, with the British Retail Consortium this week reporting that last month's overall High Street sales grew at double the rate of December 2000. Some people believed that this mini spending boom would be enough to prompt a quick reaction from the committee, particularly given the way that house prices also appear to have bounced back. However, this was not to be and the hawks will have to wait at least another month before any rate rise occurs.

Ian Fletcher, chief economist at the British Chambers of Commerce, says: "This is an understandable pause, which reflects the very divergent nature of our economy. Against a very benign inflation environment, the MPC has the luxury of time to judge whether current levels of consumer spending is simply Christmas indulgence or something more persistent. The current strength of consumer spending may cool of its own accord and the MPC would, therefore, be premature to contemplate raising interest rates at this juncture."

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