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ARTICLE · 08 JULY 2004

Economic Update - A stay of execution…but not for long

Deloitte
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After raising interest rates in both of the previous two months, the Monetary Policy Committee granted borrowers a reprieve in July by holding interest rates at 4.5%. But the pardon is unlikely to last very long. I expect the Committee to raise rates again in August by another 25 basis points.

United KingdomStrategy
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  • After raising interest rates in both of the previous two months, the Monetary Policy Committee granted borrowers a reprieve in July by holding interest rates at 4.5%. But the pardon is unlikely to last very long. I expect the Committee to raise rates again in August by another 25 basis points.
    • Until recently, the Committee’s ostensible motivation for higher interest rates has been the supposed threat of higher inflation in two years’ time, thanks to the economy fast approaching capacity limits. In this regard, some of the data released in the last month were encouraging. Although National Statistics revised GDP growth up in Q1, the quarterly growth rate of household spending was reduced from 0.9% to 0.6%. This meant that for only the second time in nearly ten years, quarterly GDP growth was faster than household spending growth for three successive quarters.

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