Relief as rate rise is delayed

It was the banks that precipitated the credit crunch through their reckless lending, leaving the UK and other economies to count the cost for years to come.

The decision yesterday by the Bank of England to keep interest rates on hold was a rare piece of good news for borrowers amid further evidence that the economy is struggling to regain any semblance of momentum.

New figures from the vital services sector show that growth slowed in April and, worse still, prices rose at their fastest for two-and-a-half years. It comes as the impact of George Osborne’s unprecedented spending squeeze begins to hit the economy as many employees struggle with real-term pay cuts not seen since the 1870s.

The Chancellor is heavily reliant on interest rates remaining on hold as the Government; any increase in the near future would kill off the few green shoots of recovery that have taken hold. The main pressure on the Bank’s policy-makers comes from inflation and it is a serious concern that these pressures are not easing.

Some have called for interest rates to rise to help savers although this is only likely to encourage more people save which is not what the country currently needs.

Mr Osborne’s single-minded pursuit of cuts at all costs means that he will have nowhere to go if policy-makers decide inflation cannot be beaten without an interest rate rise.

There is no argument that the behaviour of the banks precipitated the economic crisis. Gordon Brown’s failure to tackle the structural deficit in public finances, which emerged before the crash, exacerbated problems.

Economic commentators generally praised the Bank of England yesterday for holding its nerve. But, above all, it is Mr Osborne who is holding his breath and hoping that his £81bn cuts gamble does not tip the economy into a decade or more of stagnation, even more so if interest rates do go up later this summer. The Chancellor has no Plan B – and neither does the country.