UK interest rates rise 0.25% to 5.25% in shock Bank of england move
Interest rates hit their highest level in more than 5½ years today as the Bank of England surprised the City by raising the cost of borrowing to 5.25 per cent.
The quarter of a percentage point increase wrong-footed analysts, most of whom had expected the Bank’s monetary policy committee to stay its hand this month, before possibly introducing an increase in February.
A recent Reuters poll had shown that only one out of 50 economists thought the meeting would end with news of a quarter of a percentage point hike.
The move suggests that Mervyn King, Bank governor, and the majority of his colleagues on the rate setting body felt immediate action was needed in order to tame inflation.
The consumer price index rose by 2.7 per cent in November, the seventh month it has been above the Bank’s 2 per cent target, and recent data suggest the economy is showing little signs of cooling in response to last year’s two quarter point interest rate increases.
Since the turn of the year, the City has had to digest a survey of service companies that showed the sector growing at its fastest pace in nearly 10 years; strong numbers on mortgage lending, which suggest the housing market will remain buoyant at least into the spring; and a stronger than expected report on retail sales over the important Christmas period that shows consumption growth proceeding at a reasonable clip.
In addition, data released on Thursday showed the manufacturing rebounding in November after three months of contraction.
Mr King may remain sanguine that the High Street was able to confound fears of a poor Christmas 2006 – he believes it takes till the Spring before the true outcome of festive season retail sales are revealed – but he is likely to have been concerned by evidence of bubbling inflation in the shops and elsewhere.
The British Retail Consortium on Wednesday said that retailers pushed up prices by 2.28 per cent in the twelve months to December, the fastest pace of inflation since March 2004.
Competition on the High Street previously had resulted in a near year-long period of deflation, but the December numbers now represent the sixth consecutive month of price rises and suggest that retailers are enjoying more pricing power.
Should this trend continue, it would make it more difficult for the Bank to bring headline consumer price inflation back down from the current 2.7 per cent to its 2 per cent target.
In addition, the Bank is wary of the public’s perception of rising inflation feeding through to wages. Early indication from Income Data Services, a research company, are that pay settlements are averaging about 4 per cent, just above the 3.9 per cent of the benchmark Retail Price Index.
It is now clear that the MPC felt it could not wait another month before sending its message.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
The quarter of a percentage point increase wrong-footed analysts, most of whom had expected the Bank’s monetary policy committee to stay its hand this month, before possibly introducing an increase in February.
A recent Reuters poll had shown that only one out of 50 economists thought the meeting would end with news of a quarter of a percentage point hike.
The move suggests that Mervyn King, Bank governor, and the majority of his colleagues on the rate setting body felt immediate action was needed in order to tame inflation.
The consumer price index rose by 2.7 per cent in November, the seventh month it has been above the Bank’s 2 per cent target, and recent data suggest the economy is showing little signs of cooling in response to last year’s two quarter point interest rate increases.
Since the turn of the year, the City has had to digest a survey of service companies that showed the sector growing at its fastest pace in nearly 10 years; strong numbers on mortgage lending, which suggest the housing market will remain buoyant at least into the spring; and a stronger than expected report on retail sales over the important Christmas period that shows consumption growth proceeding at a reasonable clip.
In addition, data released on Thursday showed the manufacturing rebounding in November after three months of contraction.
Mr King may remain sanguine that the High Street was able to confound fears of a poor Christmas 2006 – he believes it takes till the Spring before the true outcome of festive season retail sales are revealed – but he is likely to have been concerned by evidence of bubbling inflation in the shops and elsewhere.
The British Retail Consortium on Wednesday said that retailers pushed up prices by 2.28 per cent in the twelve months to December, the fastest pace of inflation since March 2004.
Competition on the High Street previously had resulted in a near year-long period of deflation, but the December numbers now represent the sixth consecutive month of price rises and suggest that retailers are enjoying more pricing power.
Should this trend continue, it would make it more difficult for the Bank to bring headline consumer price inflation back down from the current 2.7 per cent to its 2 per cent target.
In addition, the Bank is wary of the public’s perception of rising inflation feeding through to wages. Early indication from Income Data Services, a research company, are that pay settlements are averaging about 4 per cent, just above the 3.9 per cent of the benchmark Retail Price Index.
It is now clear that the MPC felt it could not wait another month before sending its message.
The contents of this blog are for information purposes only. It is not intended as a recommendation to trade or a solicitation for funds. The Wise Money Blog cannot be held responsible for any loss or damages arising from any action taken following consideration of this information.
posted by Drs Search @ 12:24 PM
0 Comments:
Post a Comment
Links to this post:
Create a Link
<< Home