Mounting Pressure On BOE To Cut Loan Interest Rates
The Governor of the Bank of England, Mervyn King, must be getting quite a headache at the present time due to the state of the economy in the UK.
Inflation has steadily increased over the course of the year, reaching a level of 4.7 per cent in August, forcing the Monetary Policy Committee (MPC) to maintain the base rate of interest on mortgages and loans at 5 per cent since April this year.
Yet at the same time as these factors, the housing and loan markets have suffered a significant slow down, with house sales and new loan completions reaching the lowest levels for many years, despite reductions in the average price of a house in the UK.
It now looks as though it is likely that Britain will enter a technical recession by the end of the year (if we haven’t already done so) and there is mounting pressure from various industry groups for the Bank of England to cut interest rates as a matter of urgency at the next MPC meeting which is to be held at the beginning of October.
A technical recession is defined as two consecutive quarters of negative gross domestic product (GDP) growth. Over the course of the last three months, growth in the UK has flat lined, with 0 per cent growth.
The British Chamber of Commerce (BCC) is one of the groups exerting the most pressure on the Bank of England for a rate cut and claims that, although a recession now looks inevitable, by cutting interest rates and reducing the cost of loans and mortgages, it will be possible to stave off a major recession, similar to the one experienced in Britain during the late Eighties and early Nineties.
A spokesman for the BCC said “The longer the Monetary Policy Committee waits before cutting rates, the bigger the danger that the economic situation could deteriorate. The level of UK unemployment is likely to increase by nearly 300,000 over the next few years, reaching almost two million. The main drivers of the UK slow down will be a sharp deceleration in consumer spending growth as households tighten their belts amid soaring bills and falling house prices.”
