August 12th 2005
Will UK continue to lower rates?
Last week, the UK Central Bank voted to lower interest rates for the first time in two years, to 4.5%. Economists and analysts are already mooting the possibility of another decline before year-end, in anticipation of lower-than-expected UK economic growth. Several UK policy makers, however, are reluctant to lower rates any further, lest they incite another housing bubble. Rising home prices have already fuelled excessive borrowing and a proportionate rise in consumer spending. Officials, however, are worried that these spending levels have reached dangerous levels, rising twice as fast as wage growth statistics would seem to imply. The upshot is a very low likelihood of continued rate cuts. The Economist reports:
It is unlikely that Britons are in for a series of interest-rate cuts. The Bank of England knows that no good will come of re-inflating the housing bubble, which would only result in worse pain down the road, as more consumers fall into the trap of too much debt.