04.08.2004

Bank increases UK rates by a quarter

The Bank of England has raised interest rates by a quarter-point today for the fifth time since November to “cool a roaring economy”..

The central bank said that the move to 4.75 percent, the highest in almost three years, was needed to keep inflationary pressures in check as the economy is still expanding briskly and the housing market remains strong.

Many economists believe that the rise in interest rates to 4.75 percent is merely another staging post on the way to much higher rates, most expect the next upward move to come in November.

In contrast the European Central Bank in Frankfurt left interest rates unchanged today at two percent as expected, giving the euro zone economic recovery time to build even as surging oil prices boost inflation.

Economists say the ECB is reluctant to tighten credit until it is sure that a return of domestic demand, needed to sustain a fully-fledged recovery, will not be tripped up by high energy prices or a slowdown in the euro zone's main trading partners.
Most analysts expect the ECB to keep interest rates at the current record low levels into 2005. Oil prices are keeping upward pressure on euro zone inflation, which was an annual 2.4 percent in July, the same as in June and only just below May's 2.5 percent rate. The ECB aims to keep inflation just below two percent.