Case against rate rises still strengthening

15-Aug-2007

Subdued wage growth and a unanimous Monetary Policy Committee (MPC) vote on interest rates suggest that the Bank of England will hold off on raising rates again for the foreseeable future, analysts have advised.

The Office of National Statistics revealed that wage growth remained cool just a day after it said that inflation had fallen below the government's two per cent target for the first time since March 2006.

Minutes from the MPC, meanwhile, show that this month there was a 9-0 vote in favour of holding rates, suggesting that sentiment is for now firmly in favour of keeping the base rate at 5.75 per cent.

"The unanimous vote to leave rates unchanged in August was in line with our MPC-ometer's prediction and the minutes indicate less of a tightening bias than suggested by last week's Inflation Report," commented New Star economist Simon Ward.

"Coupled with yesterday's dramatic inflation drop and a surprise further fall in average earnings growth to a four-year low, this news strengthens our belief that interest rates have peaked for the year at 5.75 per cent," Mr Ward added.

The Bank had previously raised rates five times since last August.

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