The Monetary Policy Committee (MPC) of the Bank of England has today voted to keep interest rates constant at 0.5 per cent for another month.
Amid worries over consumer spending levels and the decline in national gross domestic product (GDP) during the fourth quarter of 2010, retailers will be relieved that the cost of borrowing will not be raised for now.
Stubbornly high inflation had caused many to suspect that the rate level would be increased this month, but the MPC has decided keep the rate unchanged for the 11th consecutive month.
Neil Saunders, Consulting Director of Verdict Research, supports the MPC’s decision and is keen to point out the dangers a rate rise would cause to retail.
“Most of the current inflation is caused by factors completely outside of the Bank of England’s control, as such putting up interest rates would have very little impact on the near term inflationary trend,” he said.
“What putting up rates would do, however, is to increase household mortgage and loan costs thereby dampening consumer demand for retail and other goods.
“As such, at this time higher interest rates would have a negative overall impact on the economy - something the Bank will be keen to avoid.”
Yesterday the Director General of the British Retail Consortium (BRC) Stephen Robertson warned that a rates rise would “hamper the recovery”.
BRC and Nielsen research published yesterday showed shop price inflation at a mere 2.5 per cent thanks largely to heavy discounting and clearance sales.