The Bank of England kept the benchmark interest rate unchanged, guarding against inflation after three cuts in borrowing costs since December.
The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5 percent, as forecast by all except five of the 61 economists in a Bloomberg News survey. The rest predicted a quarter-point reduction.
U.K. house prices had the first annual decline since 1996 last month, growth in service industries slowed to a five-year low, and manufacturing weakened. Concern that a recession is looming may deepen the disagreement among policy makers, who split three ways last month on how fast to cut the benchmark rate as higher oil and food prices stoke inflation.
"They know that growth is weaker,'' said Steven Bell, chief economist at GLC Ltd. in London and a former U.K. Treasury official. "The issue is how long they're willing to wait given that inflation is high. They'll cut at the next meeting.''
The central bank, which last cut the benchmark rate in April, will lower it to 4.75 percent by June, according to the forecasts of all but 10 of the 51 economists surveyed by Bloomberg News. The pound fell as much as 0.3 percent against the dollar after the decision, and traded at $1.9575 as of 12:44 p.m. in London.
Britain's rate is the highest of the Group of Seven nations. The U.S. Federal Reserve cut its main rate on April 30 to 2 percent, the lowest since 2004. The European Central Bank kept its rate unchanged at 4 percent today, as predicted by all 53 economists in a Bloomberg survey.
Election Woe
Prime Minister Gordon Brown's government is trying to extend the economy's 63 consecutive quarters of growth and rebuild support after his ruling Labour Party suffered its worst local- election performance in four decades on May 1.
The International Monetary Fund forecasts U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago. The economy expanded 0.4 percent in the three months through April, matching the three-year low of the first quarter, the National Institute of Economic and Social Research said today.
"If the slowing in economic activity is interpreted as supporting lower inflation, a further rate cut could be on the cards, possibly as soon as next month,'' said Barry Naisbitt, chief economist at Abbey, a mortgage lender.
Housing Slump
House prices fell 0.9 percent in April from a year earlier, the first annual drop in more than a decade, HBOS Plc said on May 2. An index of growth at services companies from banks to hotels fell to the lowest since March 2003 last month, the Chartered Institute of Purchasing and Supply said on May 6. Factory production dropped 0.5 percent in March, data showed yesterday.
Next Plc, the U.K.'s third-largest clothes retailer, said today that a sales decline worsened in the fiscal first quarter through April 26 as Britons had less money to spend in its stores.
"We need lower interest rates to underpin consumer confidence,'' Michael Coogan, director general of the Council of Mortgage Lenders, which represents U.K. home-loan providers, told Bloomberg Television before the decision. "What we need today is a cut and there's no need for them to delay until next month.''
The Bank of England offered on April 21 to swap government bonds for mortgage securities to kick-start lending between banks. They are struggling to fund their businesses after credit markets froze up following the collapse of the U.S. subprime mortgage market, leading to $319 billion in writedowns and losses at financial companies.
Bank Writedowns
Lloyds TSB Group Plc, the U.K.'s largest provider of checking accounts, said on May 6 that first-quarter profit was held back by asset writedowns and slowing insurance sales. Finance Director Tim Tookey predicted a marked slowdown for the British economy.
"The data has been weak,'' said George Buckley, an economist at Deutsche Bank AG in London. "But they're still worried about inflation and they don't like surprising the market.''
Policy maker David Blanchflower said on April 29 that the economy risks a recession unless the central bank takes aggressive action. His vote for a half-point rate reduction last month was defeated in the first three-way split for almost two years. The majority wanted a quarter-point cut and Timothy Besley and Andrew Sentance favored no change.
Inflation, at 2.5 percent in March, is likely to reach the government's upper limit of 3 percent because of higher commodity costs and the pound's weakness, King said April 29. The bank will release forecasts for growth and inflation on May 14.
Crude oil breached $120 for the first time, and United Nations figures showed food was 57 percent more expensive globally in March than a year earlier. The U.K. currency has fallen 10 percent in the past year on a trade-weighted basis, making imports more expensive.
"Inflation concerns are not abating,'' said Amit Kara, an economist at UBS AG in London who formerly worked at the Bank of England. "We will get weaker growth and the question is how weak it will be. It's really a balancing act.''
The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5 percent, as forecast by all except five of the 61 economists in a Bloomberg News survey. The rest predicted a quarter-point reduction.
U.K. house prices had the first annual decline since 1996 last month, growth in service industries slowed to a five-year low, and manufacturing weakened. Concern that a recession is looming may deepen the disagreement among policy makers, who split three ways last month on how fast to cut the benchmark rate as higher oil and food prices stoke inflation.
"They know that growth is weaker,'' said Steven Bell, chief economist at GLC Ltd. in London and a former U.K. Treasury official. "The issue is how long they're willing to wait given that inflation is high. They'll cut at the next meeting.''
The central bank, which last cut the benchmark rate in April, will lower it to 4.75 percent by June, according to the forecasts of all but 10 of the 51 economists surveyed by Bloomberg News. The pound fell as much as 0.3 percent against the dollar after the decision, and traded at $1.9575 as of 12:44 p.m. in London.
Britain's rate is the highest of the Group of Seven nations. The U.S. Federal Reserve cut its main rate on April 30 to 2 percent, the lowest since 2004. The European Central Bank kept its rate unchanged at 4 percent today, as predicted by all 53 economists in a Bloomberg survey.
Election Woe
Prime Minister Gordon Brown's government is trying to extend the economy's 63 consecutive quarters of growth and rebuild support after his ruling Labour Party suffered its worst local- election performance in four decades on May 1.
The International Monetary Fund forecasts U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago. The economy expanded 0.4 percent in the three months through April, matching the three-year low of the first quarter, the National Institute of Economic and Social Research said today.
"If the slowing in economic activity is interpreted as supporting lower inflation, a further rate cut could be on the cards, possibly as soon as next month,'' said Barry Naisbitt, chief economist at Abbey, a mortgage lender.
Housing Slump
House prices fell 0.9 percent in April from a year earlier, the first annual drop in more than a decade, HBOS Plc said on May 2. An index of growth at services companies from banks to hotels fell to the lowest since March 2003 last month, the Chartered Institute of Purchasing and Supply said on May 6. Factory production dropped 0.5 percent in March, data showed yesterday.
Next Plc, the U.K.'s third-largest clothes retailer, said today that a sales decline worsened in the fiscal first quarter through April 26 as Britons had less money to spend in its stores.
"We need lower interest rates to underpin consumer confidence,'' Michael Coogan, director general of the Council of Mortgage Lenders, which represents U.K. home-loan providers, told Bloomberg Television before the decision. "What we need today is a cut and there's no need for them to delay until next month.''
The Bank of England offered on April 21 to swap government bonds for mortgage securities to kick-start lending between banks. They are struggling to fund their businesses after credit markets froze up following the collapse of the U.S. subprime mortgage market, leading to $319 billion in writedowns and losses at financial companies.
Bank Writedowns
Lloyds TSB Group Plc, the U.K.'s largest provider of checking accounts, said on May 6 that first-quarter profit was held back by asset writedowns and slowing insurance sales. Finance Director Tim Tookey predicted a marked slowdown for the British economy.
"The data has been weak,'' said George Buckley, an economist at Deutsche Bank AG in London. "But they're still worried about inflation and they don't like surprising the market.''
Policy maker David Blanchflower said on April 29 that the economy risks a recession unless the central bank takes aggressive action. His vote for a half-point rate reduction last month was defeated in the first three-way split for almost two years. The majority wanted a quarter-point cut and Timothy Besley and Andrew Sentance favored no change.
Inflation, at 2.5 percent in March, is likely to reach the government's upper limit of 3 percent because of higher commodity costs and the pound's weakness, King said April 29. The bank will release forecasts for growth and inflation on May 14.
Crude oil breached $120 for the first time, and United Nations figures showed food was 57 percent more expensive globally in March than a year earlier. The U.K. currency has fallen 10 percent in the past year on a trade-weighted basis, making imports more expensive.
"Inflation concerns are not abating,'' said Amit Kara, an economist at UBS AG in London who formerly worked at the Bank of England. "We will get weaker growth and the question is how weak it will be. It's really a balancing act.''
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