Bank of England Keeps Rates on Hold
The Bank of England kept its main interest rate steady at 5 percent on Thursday, as widely expected, despite rising inflation.
Signs of weakness in the British economy have increased, with house prices falling and mortgage approvals continuing to go down, and analysts said monetary policy was tight anyway because of the effects of the global financial turmoil.
"It doesn't matter what the Bank of England base rate is … it's going to remain hard to get a mortgage, it's going to remain hard to get a good interest rate on any loan," Steven Mayne, head of research at Montague Pitman Stockbrokers, told "Power Lunch Europe."
Homebuilders have been among the hardest hit, with Bovis Homes and Redrow announcing on Wednesday they would cut 40 percent of their workforce and Persimmon, Barratt Developments and Taylor Wimpey announcing earlier more than 3,000 job cuts collectively.
Britain's biggest mortgage lender Halifax said on Thursday that house prices fell at a record annual pace in June. Prices are now nearly 10 percent below the peak hit last August.
Overall inflation, at 3.3 percent, is the highest since the Bank of England started setting interest rates in 1997.
However, the bank's next move is likely to be a cut, analysts say, although they do not agree on the timing of monetary easing.
"We think the soonest they could realistically cut it November. We think they are going to remain very fearful of inflation, which we think is going to peak around September, October," David Page, economist at Investec, told CNBC.
But the peak for price rises can come later and be more than double the bank's official inflation target of 2 percent, other analysts said.
"We suspect that commodity price appreciation will slow in response to a global downturn and the weak domestic growth environment will constrain corporate pricing power," ING Bank economist James Knightley wrote in a market note.
"Consequently, lower inflation will allow the BoE to respond to the recession threat in early 2009 with rates set to be cut aggressively towards 3.5% by mid-year," Knightley added.