Almost a reiteration of our July bulletin with little expectation that rates will rise in 2009, the outlook for 2010 is still uncertain.
Quantative Easing (QE) measures are bolstered yet again with an increase of a further £50bn adding to the already vast £125bn, taking the input to QE measures to £175bn. This measure can also be used as a mechanism to maintain the government’s inflation targets of 2%. CPI inflation in June fell to 1.8%, the fall mainly attributed to lower food and energy costs although sterling’s weakness in the currency markets appears to be balancing out these reductions and applying an upward pressure on inflation.
In the minutes of its July meeting, the MPC acknowledged, “The weakness of bank lending continued to hang over the prospects for recovery. It was likely that demand for loans had fallen and also that the ability of UK banks to lend was being constrained by a lack of capital.”
Low rates could remain for some time to come and we would expect rates to remain low until Easter 2010 before rates increase in earnest but the uncertainty is still very much in the frame and we should expect rates to increase as quickly as they had fallen. The question remains – when?
The next meeting of the MPC will be on the 10th of September 2009. A lengthy Press Release from the Bank of England about this reduction can be found at: Go to Bank of England Press Release
Historical information on the BoE base rate is available from their statistical department at: Go to Bank of England Statistics website