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Highlights
As expected, the Bank of England kept its key interest rate at 5 percent as growth continues to slow and inflationary pressures climb. The monetary policy committee last lowered interest rates at its April meeting. The MPC remains stuck firmly between a rock and a hard place -- pulled in two directions by the conflicting trends of faltering growth and rising inflation pressures, both of which have grown worse since the committee met in July. Evidence has piled up that the economy is sliding into the grip of a serious slowdown, if not an outright recession. The first estimate of second quarter GDP edged up 0.2 percent and 1.6 percent on the year, exhibited the weakness.
Recent economic data continued to weaken as the housing sector and with it, consumer confidence tumble. And both the manufacturing and services sector continue to weaken as well. Newly released data on industrial and manufacturing output declined more than expected while the purchasing managers surveys continue to exhibit lackluster performance as well. The deepening slump in house prices continues to be a key factor in undermining growth and future prospects. June retail sales plummeted after a stronger than anticipated May.
The Bank's 5 percent lending rate continues to be the highest among the Group of Seven nations while Japan's 0.5 percent is the industrialized world's lowest. The Bank issued no statement with the decision. Bank watchers will have to wait two weeks for the minutes of the meeting. At the July meeting, there was a three way split among monetary policy committee members on which direction interest rates should move and economists say the bank's quandary has worsened since then. On August 13, the MPC will release their quarterly Inflation Report giving their new forecasts for the economy.
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