Category: Starting a Successful Small Business >> All about Bank Loan & Interest Rates

Bank Interest Rates – What you should know


According to media reports, the Bank of England has decided to keep interest rates on hold at 5%. This has happened because Bank of England is facing lots of difficulties in dealing with a spiraling inflation and economy slowdown. The Bank of England implements its decisions on interest rates with the help of their financial market operations.


All the decisions related to interest rates are taken by the Monetary Policy Committee. It is their job to evaluate what interest rate is required to meet a goal for complete inflation in the UK economy. The main objective of Monetary Policy Committee is to keep inflation at 2%. However, at this moment of time, inflation stands at 3.8%.


Activity Slowing

All the prominent sectors of the economy are witnessing a slowdown because business confidence is not high. Consumer spending is deteriorated by the tight credit situations and dipping housing prices. In the second quarter of 2008, the UK economy grew just 0.2%. The International Monetary Fund has already revised down its forecast for the 2009 UK economic growth. It now expects a growth of 1.1% for 2009. Interestingly, the UK government still believes that growth rate for 2009 would be more than 2%.

Shifting Risk

Despite the slowdown in the economy, Bank of England has held interest rates because they do not want to push the economy into recession. However, the decrease in the price of oil, from peaks of $145 a barrel in July to about $120 may allow interest rates to be minimized as early as October 2008. According to experts, the decision to hold interest rates was justifiable because of high inflation, but they also warned that a decrease in interest rates may be required amid further signs of weakening that is being shown by the UK economy.


Pressure on Monetary Policy Committee

Pressure is growing on the Monetary Policy Committee to act quickly especially with High Street confidence brittle and house prices decreasing. Recent figures from Halifax state that UK house prices recorded a yearly dip of more than 10% in August. With an eminent recession, the UK economy does not need to worry about the inflation as much. A three-way voting split on the Monetary Policy Committee clearly signifies the fact that everything is not right in the committee. To give some impetus to the faltering economy, interest rate cuts are quite mandatory. If committee does not take any step, unemployment is going to increase.





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