Interest rates unlikely to rise as economy takes turn for worse

Landlord Expert
By Landlord Expert July 26, 2011 08:57

Minutes to its July meeting show that the monetary policy committee of the Bank of England judged that recent economic weakness had reduced the likelihood that interest rates would need to rise in the near term.

 

Indicators had predicted continued modest underlying GDP growth in the second quarter, but some softening in the outlook for the third quarter, said the MPC

It explained that there remained substantial risks posed by an escalation of the eurozone debt crisis and funding costs faced by major UK banks stayed elevated as a result.

It noted: “Recent developments had reduced the likelihood that a tightening in policy would be warranted in the near term.”

Inflation remains more than double the Bank’s target, though it eased to 4.2% in June.

The MPC said it was likely that inflation would peak higher and sooner than previously thought recent due to increases in food and utility prices, however the majority remain confident that it would fall back to target in the medium term.

Analysts: all time low rates to stay for a great deal longer

The balance of risks to medium-term inflation has little changed over the month and risks remained considerable in both directions, said the Bank.

“If it were to become clear that one of those risks had crystallised – and the medium-term outlook for inflation had deviated materially from the target in either one direction or the other – the committee would respond by changing the stance of monetary policy.”

Between March 2009 and February 2010, the Bank bought £200bn of British government bonds and other financial assets with newly created money in an attempt to steer the economy out of recession.

Several policymakers, in recent months, have flagged the possibility that more QE may be needed if the recovery gets off track.

At the end of last year Britain’s economy slammed into reverse and fears that GDP may have contracted again in the second quarter have been raised by weak economic data.

Landlord Expert
By Landlord Expert July 26, 2011 08:57

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