Mixed Signals Give Bank no Choice on Rates, say Business Leaders

12 January 2006

Today's decision by the Bank of England to leave interest rates on hold at 4.5% was the only option under the circumstances, the Institute of Directors (IoD) said.

Graeme Leach, Chief Economist at the IoD explained:

"This is a very tricky time for the Bank because three alternative sources of information are providing conflicting signals about the strength of UK economic activity, namely, monetary statistics; retail surveys and the housing market; and, finally, official statistics.

"Money supply measures suggest economic growth could be quite strong in 2006. Retail surveys over the Christmas period, together with recent house price and mortgage applications data, also suggest consumer confidence is picking up, but these numbers are less bullish than the monetary statistics. The most subdued evidence comes from official statistics. Faced with this divergent evidence the Bank was always likely to keep its powder dry for another month."