The Bank of England held interest rates steady at 5 per cent today, in a widely expected decision as policymakers tussle with the twin evils of a slowing economy and surging inflation.
Annual inflation is at its highest - 3.3 per cent – since the BoE won the power to set rates in 1997, making it hard to cut borrowing costs even though the housing market is weakening sharply and surveys point to a shrinking economy.
Britain's biggest mortgage lender Halifax said today that house prices fell at a record annual pace in June. Prices are now nearly 10 per cent below the peak hit last August.
Despite obvious signs of a cooling economy, some policymakers considered raising rates at last month's meeting to counter the inflation threat. The BoE has said it would not be surprised to see inflation spike above 4 per cent this year.
The BoE is charged with keeping inflation at a 2 per cent target, not to manage economic growth.
The central bank will be hoping that a slowing economy can help to tame price pressures eventually. But there is also a growing risk of recession, and that could drag inflation too low.
By keeping rates on hold this month, the BoE is buying itself a little more time to see what interest rate path is required to bring inflation back to target over the medium term.