In April of this year the Bank of England cut the base rate for the third time since December of last year, cutting it by a further 0.25% and taking it from 5.25% to 5%. Following the rate cut the majority of analysts and economists predicted that there would not be a further interest rate cut in May, as the central bank has not cut rates back to back for seven years. These predictions were proven right, as the Bank of England announced that there is to be no base rate cut for May following the recently Monetary Policy Committee meeting.

The decision with regards to whether to cut rates or not has been a tough one over recent months for the Monetary Policy Committee members, as there are a number of factors that have to be considered. The MPC has to consider rising inflation, which is currently higher than the government target of 2%, standing at 2.5%. This means that it has to be careful about reducing interest rates. On the other hand it also needs to consider the state of the slowing economy, which makes it more important to cut the base rate. The need to keep a lid on inflation combined with the need to boost the slowing economy means that the decision on interest rate movements has become a fine balancing act.

Most industry experts are now predicting that the next base rate cut will come in June, and whilst most people were not surprised that the central bank left the rates on hold for May, millions of homeowners and various industry professionals will be disappointed with the decision. A number of officials have commented on the recent announcement about the interest rate, with a number stating that the decision to leave rates on hold this month was a mistake.

Officials from the British Chambers of Commerce recently stated that another interest rate cut in May would have helped to boost consumer and business confidence, and they described the decision as a big mistake.

Officials from the EEF said that further interest rates are vital in order to boost the economy, with one official stating: “The economy has been through a series of shocks since the credit crisis hit last summer and the Bank has been right so far in responding with a measured approach on rates. However, despite concerns on inflation, further cuts to interest rates are needed to prevent the economy from drifting towards recession.”

Howard Archer from Global Insight stated: ‘Current elevated inflation levels and risks deterred the MPC from cutting interest rates for a second successive month despite mounting signs that the UK economic slowdown is deepening and widening amid tighter lending conditions.’ He added: ‘It seems odds-on that the Bank of England will trim interest rates from 5.00% to 4.75% in June, thereby maintaining the trend of cutting by 25 basis points every two months.’

Recent additions:

• What’s in store for the UK economy?
•  Start of year sees insolvency levels rise
• Credit crunch leads to increase fraud on finance applications
• Lenders need to be more cautious
• The credit squeeze continues
• Is debt consolidation the answer?

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