Interest rate hold welcomed

The Bank of England's monetary policy committee (MPC) has announced that interest rates will be held at 5.75 per cent in August, a move welcomed by financial markets.

Mark Blackwell, head of corporate and specialist lending at Cheltenham & Gloucester, said that the committee ran the risk of overkill if it raised rates again this month.

"After two interest rate rises in three months, the MPC was in danger of doing too much without allowing time to assess the effect of the earlier increases," he said. "With around two million people likely to have to re-fix their mortgages at higher current rates, the economic impact could be quite large and negative.

"Moreover, there are some signs that the impact of earlier increases is beginning to hit retail sales, credit borrowing and the housing market."

Mr Blackwell stressed that it is still "early days" in the interest rate cycle and said the 'wait and see' outlook is likely to persist for some months.

Barry Naisbitt, chief economist at Abbey, said that financial markets will be looking to this month's inflation report for guidance on policy thinking but predicted another rise in rates later in the year on the back of strong incoming economic data.

"The inflation report will provide an update on the Bank's outlook for inflation and, if the MPC considers the risks to inflation to be sufficiently on the upside, a rise to six per cent could be on the cards in the next three months," Mr Naisbitt added.

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