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Inflation Makes the Work of MPC Tough
Bank of England is finding it tough to settle down the rate of interest for June as inflation is still at 3% and services sector is witnessing a doom.
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June 5, 2008 (FPRC) -- The Bank of England was today buffeted by a blizzard of dismal economic news as the MPC met to set interest rates for the month of June. A bird's eye view of the services sector showed the engine room of the British economy lurching towards crisis, with business declining for the first time in last five years and job squeeze at hotels, restaurants and financial firms. The services sector, which accounts for more than two-thirds of the British economy, suffered a major slump in May as demand fell and prices rose.
Building society across the UK, meanwhile, reported that consumer confidence fell last month to its lowest point since 2004 as households felt the pain of the rising cost of living and lower disposable incomes. Inflation played its worst role during this period.
Homeowners and businesses are desperate for some relief from higher interest rate and expected a significant cut in it. But any reduction in the interest rate looks highly unlikely with inflation being driven higher by rising oil and food prices. MPC is widely expected to leave rates on hold when its two-day meeting ends tomorrow.
Inflation is at 3% now but is expected to rise by the end of this month. Any increase will force Bank Governor Mervyn King to write a second letter to Alistair Darling to explain why it is above the 2% target so far.
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