There was little surprise amongst industry officials last week after the Bank of England announced that loan interest rates were to be kept on hold for the third month running. The announcement that interest rates would remain static at 5% came after Thursday’s Monetary Policy Committee meeting.

Some officials had thought that the base rate may actually rise, as the central bank tries to bring inflation levels back under control after they soared to 3.3%. However, it is now thought that the base rate is likely to remain on hold for at least the next couple of months.

It has been another challenging meeting for members of the rate setting Monetary Policy Committee according to officials. There are clear signs that the economy has weakened further, and there has been much speculation over how close the nation is to recession.

However, despite calls from industry sectors to cut rates in order to boost the economy, the MPC has had to also consider the fact that inflation has soared way above the government’s 2% target, and this has swayed the decision to keep rates on hold.

One economist stated: ‘The overall impression is that the Bank of England is currently very much in “wait and see” mode and in no hurry to change loan interest rates, given the current major uncertainties surrounding both the growth and inflation outlooks. We believe it is most likely that interest rates will stay at 5.00% for many months to come, as very weak economic activity increasingly contains and then dilutes underlying inflationary pressures. Further out, we expect interest rates to be cut significantly in 2009 and to come down to 4.00%.’

Another official stated: ‘Short-term inflation prospects look ugly and the CPI measure could well exceed 4.5% this autumn. But we judge that this will not happen and that the inflation outlook in the medium-run will be largely governed by an economy close to recession later this year. ‘