BoE to freeze key interest rate amid credit crisis

FE Team | Published: November 08, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

LONDON, Nov 7 (AFP): The Bank of England (BoE) is expected to leave interest rates on hold again Thursday despite concerns over the impact of the global credit squeeze on the local economy, analysts said.
The BoE's Monetary Policy Committee (MPC), at the conclusion of a two-day meeting, should keep British borrowing costs at 5.75 per cent-the highest level for six and a half years, they said.
"We remain concerned about the possible effects of the credit squeeze on the economy," Investec economist Philip Shaw said.
"We would not be surprised if the MPC brought rates down Thursday but we now judge that it is more likely to keep the bank rate on hold at 5.75 per cent."
Shaw added that recent British economic data has been stronger than the market expected, "implying that if the economy is slowing down, it is doing so from a position of considerable strength."
The European Central Bank was also forecast to hold its key rate at 4.00 per cent Thursday.
Last week, however, the Federal Reserve decided to cut US interest rates by a quarter of a percentage point to 4.50 per cent as it predicted slower US economic growth in the near term.
Commercial banks have become very nervous about lending cash to each other amid fears over possible exposure to the US housing market slump-creating a credit crunch.
Citigroup, the biggest US bank, said Sunday that it expected losses of up to 11 billion dollars (7.6 billion euros) related to problems in the US subprime mortgage sector.
If British interest rates remain on hold this week, they will have stood at 5.75 per cent since July. They were hiked on five occasions between August 2006 and July 2007, each time by a quarter-point, to tackle high inflation.
As a result, the country's consumer price index has fallen dramatically to stand at an annual rate of 1.8 per cent in September, after spiking to 3.1 per cent in March.
The BoE is tasked with keeping British inflation at an annual rate of about 2.0 per cent.
"Admittedly, CPI inflation came in below its target for the third consecutive month in September," said Capital Economics analyst Vicky Redwood.