At its July 2011 meeting, the Bank of England Monetary Policy Committee (MPC) once again voted to hold UK interest rates at the historic low of 0.5%. The minutes of the July 2011 MPC meeting (to be published later today) will provide some insight into the thinking behind the MPC's ongoing intransigence on interest rates in the face of ongoing high inflation.But just as rates have once again been held at their record low of 0.5% (at which level they have been parked since March 2009), so the date at which the inevitable rate rise might be expected to appear has once again shifted further into the future.
The current consensus among economic analysts is that an interest rate rise might be expected "well into 2012." However, many analysts expect that inflation could have fallen sharply below current levels by that time. This could obviate the need for a rate rise, meaning that record-low interest rates might be here to stay for a still more extended period.
Euro area interest rate rise: "A classic policy error"?
In contrast to the Bank of England's ongoing "wait and see" policy, the European Central Bank (ECB) has taken action to combat high inflation. The ECB raised the euro area interest rate to 1.5% (an increase of 0.25 basis points) in July 2011.
ECB President Jean-Claude Trichet stated that euro area inflation is
"clearly" going to remain above target over the coming months, with
upward pressure coming "mainly from energy and commodity prices."
Economist David Blanchflower has dismissed the ECB's July 2011 rate hike as "a classic policy error as this will exacerbate the growth problems experienced by all countries."
Economist David Blanchflower has dismissed the ECB's July 2011 rate hike as "a classic policy error as this will exacerbate the growth problems experienced by all countries."
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