Bank of England Retains 5.0% Bank Rate
June 5, 2008
British monetary policy was left unchanged in June as expected but not without some controversy. There was no statement for immediate release. Minutes of this week’s meeting will be released on June 18th. Previous rate reductions of 25 bps from a peak of 5.75% were implemented last December, February, and April. But CPI inflation is headed over 3.0% compared to a target of 2.0%, so officials could not act now on mounting evidence of sharply slowing economic growth for fear of fanning expected inflation, which also has been rising. As in the United States, British house prices are below year-ago levels. The Halifax house price index for May was released earlier today, showing drops of 2.4% m/m and 3.8% y/y in the latest three-month period. Previously, the Nationwide house price index was announced to have fallen 2.5% in May and 4.4% y/y. If price expectations can stay anchored, weak growth in the future will curb actual inflation, but when expected inflation becomes unglued, the cause-and-effect relationship between significantly sub-trend growth and decelerating inflation tends to break down.
Tags: Sterling
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