Outlook: Bank must now pause for effect
Friday 21 August 1998
The argument for a pause is that time is needed to assess the impact of previously taken policy measures. There is now an equally strong case for the Bank to announce a further period of quiet reflection.
Judging by recent economic evidence, the Monetary Policy Committee should have a relatively easy task at its next meeting. There seems to be no case for a further increase in rates at this juncture, and the case for cutting rates now is also far from proven.
In fact, the evidence points to the conclusion that rates should be left where they are for some time to come.
The latest figures show that the economic slowdown is spreading from manufacturing into services. Investment is taking a hit, and consumer spending is moderating. All this is good news, but the battle is not over yet.
Earnings growth is still high enough to cushion consumers from the impact of small increases in mortgage rates, and indeed mortgage lending in particular and consumer credit in general remain surprisingly robust.
It all adds up to a good argument for the Bank to sit on its hands.There's much to be said for considered inaction. It's time to declare another pause.
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