08.08.08 by Andrew Montlake

Bank of England Base Rate Held

It’s rare for there to be such uncertainty about the outcome of an MPC meeting as there has been with this one — it could, in theory, have gone either way. But it’s this level of uncertainty that almost certainly led to the hold.

When there are strong arguments for rates to be slashed or hiked, as there are at present, the best tactic is to leave them alone and continue to monitor.

That, clearly, is what the MPC has done. Lowering the base rate to boost consumer and business confidence would potentially exacerbate already high inflation, while raising it to contain inflation could be the straw that breaks the camel’s back for the economy and confidence generally, very possibly precipitating a recession.

By keeping rates on hold, the MPC is giving itself more time to see whether the current slowdown will put the brakes on inflation all by itself, thus removing the need for monetary action. If it does, the Bank will have dodged a very big bullet.

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