Bank Under Interest Rate Pressure

The Bank of England’s Monetary Policy Committee will be meeting next week to decide the level of interest rates for another month.

Pressure is coming from two sides, one pointing to an interest rate cut, the other pointing to an interest rate rise.

After the interest rate cut in December, many experts have been expecting a further cut in interest rates, either in January of February. This is because the economy is beginning to struggle in the wake of the credit crunch with a lack of liquidity in financial markets, and also because the housing market is slowing down rapidly (faster than the Bank expected) and consumer confidence is falling. Another interest rate cut is also wanted to assist consumers as their spending is being squeezed by the higher mortgage repayments as a result of earlier rate increases, and increasing energy bills.

On the other side of the coin, the Bank is striving to keep inflation under control. Holding steady at 2.1% in November, the Bank could heave a sigh of relief after it had lowered interest rates, but the inflation rate for December may be higher. On Wednesday this week, the price of oil hit a record high, passing the $100 a barrel threshold. This means higher inflation, and will add to people’s heating and petrol bills. In addition, all goods are affected by increased transport, electricity and raw materials costs.

The price of oil may remain high for some time, as the US is in the grip of cold weather, stocks are low, and major oil producers Nigeria and Algeria are experiencing violence.

Petrol prices in Britain now average 103.3p for a litre of unleaded and diesel is even higher.

Paul Watters, head of public affairs at the AA, said: “The start of the year shows little relief for motorists. We had hoped that petrol and diesel prices had hit a plateau.