Bank of England Favors Increase of Interest Rate

By: Hicham Damahi
Submitted: 2007-01-17 16:17:16
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A week ago, the Bank of England voted 6-1 in favor of increasing the nation's interest rates up to 4.75%. The minutes of the meeting held by the Monetary Policy Committee (MPC) indicated that the groups had agreed to raise the rates in order to prevent the rise of inflation. But David Blanchflower, who is a new member of the committee, opposed the immediate increase of interest rates due to issues concerning the labor market.

The decision marked the first time that Britain decided to raise the interest rates after a period of 2 years. Prior to meeting, the Bank of England's latest quarterly report on inflation hinted that interest rates might be raised in order to prevent inflation from rising above the 2% target. A recent statistics report indicated that inflation dropped from 2.5% to 2.4% last July.

According to the MPC, raising the interest rates was necessary in order to keep inflation within the government's targeted rate of 2%. But Mr. Blanchflower disagreed against an immediate increase saying that the government instead should focus on the rising rate of unemployment, which has also been a major factor behind Britain's inflation. Based on recent reports, the number of unemployed Britons jumped from 92,000 up to 1.68 million from April to June.

Meanwhile, Philip Shaw of Investec commented that the latest minutes from the committee did not show any signs that the group was planning for a series of interest rate increases. But he expected another possible rise in November depending on the developments over the succeeding months. He said that the rate of economic growth, as well as consumer demand were also crucial in determining whether there would be rate increases in the future.

A month ago, Britain's economic improvement was recorded to be in its fastest pace after 2 years. The Office for National Statistics (ONS) reported that the nation's Gross Domestic Product (GDP) rose by 0.8% from April to June. According to ONS, the growth of housing businesses and retail sales were the principal factors behind the remarkable economic improvement. It must be noted that the result surpassed the rate predicted by Chancellor Gordon Brown. Meanwhile, the recent 2006 World Cup was also seen as contributory to the growth of the economy since the demands for electrical products such as television rose during the one month tournament. Likewise, hotels and pubs had seen their profits increase during the World Cup period.

© 2006 Hicham damahi

Hicham damahi is the webmaster/promoter of TBC world, a global b2b marketplace featuring importers and exporters. Have a look at http://www.tbc-world.com

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