August 2007

Sir Alan Budd

Former chief economic adviser to the Treasury and former Bank MPC member

HOLD

The MPC, in effect, brought forward its August increase to July and there is no need for two in a row. The increases introduced so far may well prove to be sufficient to bring about the required slowdown in the economy and stop the increase in core inflation. They can, at any rate, safely wait for several months while they assess the effects of their earlier increases.

Claudio Costamagna

Former chairman of Goldman Sachs investment banking operations in Europe, the Middle East and Africa

HOLD

Given the current market environment I would prioritize liquidity versus inflation risk and therefore i would keep rates unchanged to see if the markets settle down in august before taking any further action on rates.

Bronwyn Curtis

Chair of the Society of Business Economists

HOLD

The cumulative effect of the 1.25% rise in rates needs time to work through the economy and external factors also argue for leaving rates unchanged.

The strength of sterling is keeping downward pressure on inflation and the lower, more volatile, equity markets will weigh on demand and confidence.

I have been concerned that inflation expectations might be rising but so far there hasn’t been a marked move in core output prices despite the desire of businesses to raise prices and higher funding costs in recent months.

The household sector will also be squeezed further with more than 60 percent of the official increases in interest rates still to feed through to mortgage rates. There are some signs that house price increases are moderating and unless households extend their already stretched financial positions, the housing market and spending look set to soften.

Geoffrey Dicks

Chief UK economist, RBS Financial Markets

HOLD

Anatole Kaletsky

Chief economics commentator, The Times

HOLD

I vote for no change. The strength of sterling is likely to reduce industrial pricing power and weaken export activity, tightening of global credit conditions will lead to softer conditions in the financial sector, while the lagged effect of earlier rate hikes is beginning to have a noticeable effect on housing and consumer spending.

Under these conditions, monetary policy is probably already tight enough to get inflation back to 2% and keep it around that level.

Rupert Pennant-Rea

Former Deputy Governor of the Bank of England

HOLD

After last month’s increase in rates, a pause is widely expected, which is one strong reason for the MPC to stay its hand this time. It is still unclear what the cumulative effects of the five-phase tightening will be, and so it would be useful to wait for some more evidence. However, the broader inflationary context still looks unfavourable, with strong international demand and rising prices for oil and foodstuffs. Against that background, further rises in UK rates cannot be ruled out. For this month, though, I favour no change.

Sir Steve Robson

Former Second Permanent Secretary at the Treasury

HOLD

I do not see a case for a change in terms of either the underlying economics or short term tactical issues. On the economics, inflation is slowing even if the June CPI increase was higher than low the markets expected. There are signs of slowdown in the housing market and earnings growth is at an 18 month low.That said we are not out of the woods yet. The economy continues to push ahead strongly with little or not output gap and there continue to be pricing pressures in the production chain. However we have yet to see the full impact of the recent rate rises. All in all a good case for wait and see.

On tactics, there would have to be a particularly strong case for action if rates were to be changed while the crediit markets are in such a state of excitment.

Sushil Wadhwani

Former member of the Bank’s MPC

HOLD

I would vote to leave the Bank rate unchanged this month for two main reasons.

First, developments in credit markets and global equity markets make the global economic outlook unusually uncertain, and it would be prudent to wait and see how this develops.

Second, the existing tightening has probably been more than enough to make it likely that inflation will be around target over the next 18-24 months. The MPC should worry more about the risks of monetary overkill.

Putting this together, I believe there should be no more tightening at this meeting. Moreover, given the rise in global uncertainty, it is important that the Inflation Report doesn't show upside risks to inflation. The risks are balanced, or even to the downside.

Martin Weale

Director, National Institute of Economic and Social Research

HOLD

Even before last week's excitement in the credit markets there was no obvious case for a further immediate rise in interest rates. The economy has probably not responded fully to the rises we have had already and they are probably sufficient to bring inflation back to target. But if we now see rates charged to borrowers rising relative to the base rate, then the case for an increase becomes even weaker.

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