UK interest rates held at 5%

The Bank of England's Monetary Policy Committee today voted to maintain interest rates at 5.0%.

The previous change in Bank Rate was a reduction of 0.25 percentage points to 5.0% on 10 April.

Barry Naisbitt, Abbey Chief Economist, commented: "The Bank of England held rates at 5 per cent today. Market commentators had expected no change this month after the almost unanimous decision to hold rates last month and the warnings about higher inflation in the months to come. The Monetary Policy Committee (MPC) has clearly signaled its concern that higher inflation may feed through into elevated inflation expectations. Consumer price inflation rose from 2.5 per cent to 3 per cent in April. With increasing signs of slowing output growth, the majority of MPC members must have judged that the most recent evidence of slowing economic activity needed to be balanced against both their expectation that activity would slow and that inflation indicators are high and expected to rise further.

"The MPC Minutes, which are published later this month, should give some more information on how the MPC members judged the risks in what is a highly uncertain economic situation. If the slowing in economic activity is viewed as supporting lower inflation in the medium term, a further rate cut could still be on the cards later this year, although much will depend on how inflation develops in the coming months."

Trevor Williams, Chief Economist, Lloyds TSB Corporate Markets said: "The Bank of England's decision to hold rates this month was widely expected, given the need to deal with the problem of rising inflation. Of course, the credit crisis is still a clear and present danger to economic growth, which suggests that rates should be cut, but inflation is now causing real concern, both in the UK and around the world.

"The worry is that worsening inflation figures in the months ahead could push inflation expectations up even further, making a rise in actual inflation a self fulfilling prophecy. Cutting base rates in this environment is not a realistic option. So the MPC was right not to move."