Press Release Summary: Though lots of measures have been applied, but the interest rates have remained unchanged.
Press Release Body: LONDON - Friday, June 06, 2008 - (Shakespeare Finance Limited) - On Thursday, despite the fact that almost everyday the evidence is showing a sharply braking economy and signs the housing market could be in for a hard landing, the Bank of England held interest rates at 5 percent for the second running month.
The reason is being told that the inflation is running a full percentage point above the central bank\'s target and it is expected to go higher yet. The money markets had priced in almost no chance of a reduction at this month\'s Monetary Policy Committee meeting.
However, the analysts say that as borrowing costs have already come down three times since December, the Bank of England will soon have to cut rates again to bolster an economy battered by a global credit crunch and soaring food and energy prices.
John Hawksworth, head of macroeconomics at Price Water House Coopers said, \"The economy is clearly slowing and the housing market has deteriorated sharply, so the MPC will need to cut rates later this year to head off the risk of a recession\".
The figures were out while policy-makers were still in conference showed that the British house prices plunged 2.4 percent last month alone, and 12,000 pounds had been wiped off the value of the average home over the last passed year.
Britain\'s services sector contracted last month for the first time in five years with companies cutting jobs for the first time in more than a decade, showed another service held on Wednesday.
However, the Bank of England Governor Mervyn King has described current conditions as being the most challenging since the MPC started in 1997 and stated that the problem for policy-makers is nothing but the inflation, which will not go away as global oil prices hit record levels and food shortages abound.
The policy-makers fear reducing interest rates when inflation is so far above the 2 percent target would risk the Bank of England\'s credibility and higher price rises becoming entrenched in the minds of people.
Roger Bootle, economic adviser to Deloitte said \"The cost of keeping interest rates higher for longer in order to slay the inflation dragon will be a more severe and longer-lasting downturn in activity\". He also stated that \"The odds of an outright recession are shortening by the day and may now be as much as 1 in 2.\"
Now, if the inflation goes above 3 percent as many expected it will in the coming months, King has to explain himself to the government.
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