Rising Inflation Prevents Cut In Interest rates

Sep 4
06:54

2008

Abbi Rouse

Abbi Rouse

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The Bank of England will be more able to reduce interest rates once the "spike" of inflation has passed, it has been claimed.

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It is claimed that once the "spike" of inflation has past the Bank of England will be better placed to cut interest rates. A Council of Mortgage Lenders spokesperson stated that the MPC (monetary policy committee),Rising Inflation Prevents Cut In Interest rates Articles are unable to reduce interest rates, because inflation is too high.

According to the spokesperson, he claims that when we are over the spike in inflation, there will be the opportunity to reduce the base rate of interest. Currently, the base rate set by the Bank of England stands at five per cent - and has remained at this level since April, when it fell from 5.25 per cent.

The monetary policy committee of the Bank of England meets to set the base rate once a month, with the decision being announced on the Thursday of the first full week of the month. The decisions made at the meeting can effect everybody in the country, as it could affect the interest charged their personal loan, secured loans or other borrowing.

A spokesperson for the Council of Mortgage Lenders said: "Until it is evident that the spike in inflation is over, we do not expect that the Bank will be able to cut interest rates. When it is apparent that we are over the spike in inflation, the Bank will have more credibility if it reduces interest rates in response to a slowing economy."

He added that such a move would be more effective in delivering the intended outcome than a drop in the base rate of interest at the current time. It would also help to boost confidence in the Bank of England and its decisions, he suggested.

The Office of National Statistics published figures earlier this month that showed the consumer price index has risen to 4.4 per cent two months ago, has been affected by 13.7 per cent rise in food prices over the course of the year. This is mainly as a result of rising meat prices, according to the research. Bread, cereals and potatoes have also seen increases in prices over the course of the past year.

In related news, a study conducted by uSwitch earlier this year found that taxes imposed on drivers in the UK are partly to blame for consumers paying more at the pump than their European peers. Indeed the survey found that Britons pay an average of 119p for every litre of fuel purchased on the forecourt, which is an average of 20 per cent more than is paid at pumps across Europe. Indeed the research found the cheapest fuels were located in Spain, where a litre of petrol costs an average of 23p less than it does here in the UK. And opting for a loan to help cover the cost of a more fuel efficient vehicle may be one option open to consumers who are finding that trips to the petrol station are coming all too often.