Last week saw members of the powerful rate setting Monetary Policy Committee meet up for their monthly meeting, and following the meeting the Bank of England announced that the base rate would be staying on hold at 5% for this month – a move that many industry officials have already been expecting. Most already knew that the decision faced by MPC members was a tough one, as they have to balance the slowing economy with soaring inflation levels when determining interest rate movement.

Many industry officials were not surprised that the rate remained static for the months, and some offered support to the Bank of England for its decision in light of the fact that inflation level have soared to a full 1% above the government’s 2% target. However, others are sceptical about whether keeping interest rates on hold will have any positive impact on inflation levels because the rate of inflation is being pushed up because of prices that are determined on an international level, such as fuel and food.

Officials from the British Chambers of Commerce said that it was vital that the government focus some of its attention on the slowing economy rather than focusing solely on inflation levels, stating: “We understand the critical need for the MPC to maintain credibility, but the MPC cannot disregard the worsening threats to growth. The necessity to write a letter to the chancellor should not be the overriding consideration for the MPC.”

However, some official understood the reasons behind the decision to keep the rate on hold. Officials from the British Retail Consortium stated: “Struggling customers and retailers certainly need a boost but, with rising oil and commodity prices stoking inflation to well above the 2% target, leaving rates unchanged was the wise option.” An official from the CBI added: “The Bank had little option this month other than to leave interest rates on hold. Oil and commodity prices are still of great concern and businesses are having to raise prices as profit margins get squeezed further.”

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