Borrowers braced for Bank rate decision

05-07-2007

Borrowers braced for Bank rate decision
Borrowing costs are expected to be raised later today when the Bank of England announces its monthly interest rate decision.

The Bank's monetary policy committee (MPC) is widely predicted to increase interest rates a quarter of a per cent to 5.75 per cent – a six-year high.

Interest rates, which were upped in May and January this year, as well as August and November in 2006, were held at 5.5 per cent in June, despite a five-four split between the MPC's members.

The Bank's governor Mervyn King was among the defeated group voting for a successive rise in June, leaving the majority of economists of the mind rates will be increased to 5.75 per cent at 12:00 BST.

The governor's hawkish stance came despite the latest figures showing inflation slowed 0.3 percentage points to 2.5 per cent in May.

But the MPC will already have seen inflation date for June due to be released in two weeks time.

The interest rate decision not only comes against the backdrop of inflationary fears but a robust housing market and faltering retail sales.

"Nevertheless, we lean towards the view that at least one of the five 'no change' camp will cross the floor on Thursday," commented Howard Archer, chief UK and European economist at Global Insight.

"The minutes of the June MPC meeting indicated that for at least some of these five committee members, it was a question of when to raise interest rates again rather than if.

"Further out, there is clearly a very real risk that interest rates will reach six per cent before the end of the year. Much will depend on how well the economy holds up over the coming months, as this will significantly influence the extent to which firms can raise prices and make them stick."


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