BoE could cut rates in August

According to a recent report the Bank of England could cut the base rate in August despite the soaring inflation levels, which have now reached 3.8%, which is way above the government's 2% target. Many financial industry experts have been predicting that if mortgage interest rates do change they will rise as a result of the high rate of inflation.

However, some officials are now stating that the central bank may actually cut the rate in August over fears that the economy could continue slowing down, plunging the nation into recession.

The majority of economists have predicted that loan interest rates will remain on hold for the remainder of the year. The base rate has been cut three times since December of last year, but after the April cut has remained static at 5%. In the last Monetary Policy Committee meeting there was a three way split on base rate movement, with seven members of the committee voting for rates to remain on hold, one member voting for rates to be cut, and one member voting for the rate to be increased.

There are concerns amongst MPC members that the economy could slow to such a point that in two years time inflation levels are below target. One member of the committee stated: "The mistake we could make, and we are all worried about this, is of holding policy too tight, and the economy weakening more than is necessary to get inflation back on target."

The governor of the central bank, Mervyn King, recently said that policymakers can do little to bring the soaring rate of inflation down. He said: "The MPC can have little impact on the path of inflation in the short term. It has not attempted to prevent inflation moving away from the target following the sharp rise in commodity prices."