No cut in rates this week, say economists

The Bank of England will not cut base rates at this week's meeting of the Monetary Policy Committee, say economists.

The MPC is not in a position to follow the recent example of the US Federal Reserve, European Central Bank, and Bank of Japan in pursuing a more relaxed monetary policy. The British economy is in much healthier shape at the moment.

'Data released since the committee last met suggest that the repo rate will stay at 5 per cent in September. Retail sales growth has remained firm and this is reflected in strong consumer credit figures,' says David Hillier of Barclays Capital.

The continuing boom in the housing market and a slight upturn in prospects for the manufacturing industry also pose a problem for the committee.

But some analysts believe the MPC should signal a clear preference for unbalanced growth over the risk of falling into recession.

'Given that it is only the strength of consumer spending that is holding the economy up as investment and net trade [exports] collapse, it would be perverse not to ensure that the consumer continues to spend,' says Andrew Smith, senior economist at KPMG, the accountancy firm. 'But there has been little domestic data that significantly alter the picture painted in the latest Inflation Report,' he says.

The process of compiling that report played a crucial role in the MPC's surprise decision to cut last month.

Further rate cuts are likely, says Smith, but not this week.

A poll of 29 City economists on Friday showed none expecting a change in rates. But before last month's MPC meeting there was similar, and ultimately misplaced, unanimity that there would be no move.