LONDON - Bloomberg
The Bank of England kept the benchmark interest rate unchanged as policy makers weighed the threat of Britain's first recession in a generation against the risk of accelerating inflation.
The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5 percent yesterday, dismissing calls from unions and executives to lower it for the fourth time since December.
�In the face of ongoing inflation pressures, the Bank of England is caught between a rock and a hard place,� Matthew Sharratt, an economist at Bank of America in London, said before the decision. �Until the outlook becomes clearer, they'll probably leave rates on hold.�
With inflation accelerating above the government's 3 percent upper limit, King has said that Britons should brace themselves for a squeeze in living standards.
Inflation reached 3.3 percent in May, exceeding the bank's 2 percent target by more than a percentage point for only the second time in a decade, and King said June 26 that it may reach 4 percent this year. At the same time, Lehman Brothers says the economy is now in recession.
House prices fell an annual 6.1 percent in the three months through June, the most in 15 years, mortgage lender HBOS said yesterday. Homebuilders Barratt Developments, Redrow, Bovis Homes Group, Persimmon and Taylor Wimpey have announced more than 4,000 job cuts since the start of the month.
�The housing market is tumbling and credit is tight,� Sarah Hewin, an economist at Standard Chartered Group in London, said in an interview on Bloomberg Television. �The pressures for a rate cut are starting to grow.�
The Bank of England has signaled it's more likely to follow the European Central Bank and raise rates rather than cut them. At least four U.K. policy makers have said they considered increasing borrowing costs last month. Minutes of yesterday's meeting, showing how each member voted, will be published on July 23.The ECB last week increased its benchmark lending rate to a seven-year high of 4.25 percent. The Federal Reserve's benchmark stands at 2 percent.