Bank of England Keeps Interest Rate Unchanged At 5.25%

The Bank of England kept interest rates unchanged as accelerating inflation presented policy makers from cutting borrowing costs to shore up economic growth. The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the interest rate at 5.25% for the second consecutive month.

A recent report showing manufacturer’s prices rising last month has caused fears amid many economists concerning rising inflation. Factory gate prices grew at their fastest rate in more than eight years. The Bank of England is predicting inflation may increase above three per cent this year. Growing inflationary pressure will make it harder for the Monetary Policy Committee to cut interest rates to protect the overall economy from slowing down.

Figures released by HBOS, the nation’s biggest mortgage lender, show house prices falling. This is also supported by research published by the Nationwide recently, confirming that prices dropped for a fourth consecutive month, in the worst streak of declines since the year 2000. Having digested the recent interim results of the house builders, we have begun to see the housing market activity drop sharply.

It is anticipated that market conditions in the UK will remain subdued in the first half of 2008. Developers and house builders will have to focus more on margins rather than driving volume. Amid news that many organisations will be reducing the number of developments this year, in the long term, the general shortage of affordable housing in the UK and demographic changes will undoubtedly support demand. Like all previous ups and downs, when confidence returns and sentiments improve we, anticipate a return to a stronger market.

Editor: Simon Weston myfirsthomeltd.co.uk

Email: simon.weston@myfirsthomeltd.com