Commenting on the July minutes from the Bank of England’s Monetary Policy Committee (MPC), Ross Bowen, managing director of Connells Survey & Valuation, said: “While there is evidence of inflation, the MPC seems to be realising the gathering pace of an economic slowdown is a greater concern.
“With market interest rates so far above Bank base rate and continued restrictions on lending, more action is needed, and now. We need the government, regulators and the Bank of England to free up the financial and mortgage markets, restore lender and consumer confidence and help get more people moving again."
Most MPC members voted to keep interest rates at 5%, although one voted to cut rates and one voted to increase rates.
The minutes from the meeting say: “There were a number of arguments for maintaining Bank Rate at 5.0% this month. The Committee had previously signalled that a margin of spare capacity would be required to reduce the risk of medium-term inflation expectations rising. The upside news on inflation during the month had made it necessary to have more spare capacity.
“But there had been downside news on economic activity during the month too, so it was possible that a higher level of Bank Rate would not be needed in order to generate that. An increase in Bank Rate in the current circumstances, when confidence was low and the financial sector fragile, could impart a downward momentum to the economy that risked a significant undershoot of inflation in the medium term. Keeping Bank Rate at 5.0% when the economy was slowing was arguably already sending a strong signal of the MPC’s commitment to reducing inflation. A rate change this month would be a surprise at a time when credit and other financial markets remained fragile.”
