Interest rates unchanged at 5 per cent
It was a widely expected decision but the sharp deterioration in the state of the economy had led many business leaders to call on the MPC to reduce rates. Only one member of the Committee, David Blanchflower, has voted for rate cuts in recent months. The remaining eight members are still worried by the threat of rising inflation.
The Consumer Price Index, the country's official inflation measure, jumped from 3.8% to 4.4% in July and August's figures are expected to show another rise. In recent weeks we have seen all the major energy providers hike their prices - gas bills have risen by an average of 34%, while electricity prices are up by an average of 22%. Food costs are also still rising and these increases have yet to filter through to the CPI figures.
That said, inflation looks set to peak in the coming months and many analysts then expect it to fall back quite quickly. If that happens the MPC is likely to start cutting interest rates in a bid to kick-start the economy and avoid recession. Some economists think Bank rate could fall as low as 3.5% next year.
However, even though Bank rate has remained unchanged since April both savers and borrowers are benefiting from more competitive deals. As we reported in our article 'Savings battle resumes', a number of providers have increased the rates on their easy access accounts in recent days. Alliance & Leicester's eSaver account is now the market leader, paying a rate of 6.56% on balances of £1 or more.
We have also seen lenders cut mortgage rates, with the leading two-year fixed rates around 5.5% - down from about 6% a few months ago. Britannia building society has the leading two-year fix at 5.49% but more movement in the mortgage market is expected in the coming days as lenders continue to undercut each other. This is great news for homeowners struggling to cope with rising living costs.
For more information on the leading rates, go to our mortgage and savings comparison tools and watch our latest video blog for further details about this month's interest rate announcement.
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