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Bank Rate fixed at five per cent

Thursday 8th May 2008

Mays interest rate decision has been announced by the Bank of England, with the monetary policy committee (MPC) opting to leave the rate unchanged for a further month.

The current five per cent base rate has been in place since April, when a quarter-point reduction was carried out by the MPC.

While the details of how each member voted are not due to be published until later in the month, commentators have already begun to raise concerns that action should have been taken now.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (RICS), asserts that the decision moves the Bank of England into "letter-writing territory".

His comments refer to the need for the Banks governor, Mervyn King, to explain to the government why inflation has been allowed to move beyond one per cent from its two per cent target figure.

The need to maintain such a level of inflation is one of the fundamental tasks the MPC is supposed to meet by adjusting the base rate.

But Mr Rubinsohn says: "RICS is disappointed that the MPC chose to leave the base rate on hold today."

However, he concedes that inflation is not the most important concern as "recent data and surveys suggest that the threat of a sharp slowdown in economic activity is the more pressing issue for the authorities".

Eamonn Rice, chief executive of mortgage applications service mform, echoes the concerns.

He notes that a lack of confidence among consumers and within the construction industry could see a slump in new properties and mortgage applications, with knock-on effects on the economy as a whole.©

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