Tracy Morshead, managing director of Principality Building Society, said: “As expected, the Monetary Policy Committee has left interest rates on hold and has adopted the ‘wait and see’ approach until key wage growth figures are released in January.
“The widespread expectation is for economic growth to gradually strengthen during 2006 from a below-trend rate of 1.7 per cent and for interest rates to remain broadly unchanged. This view is now shared by the Government, which lowered its forecasts for growth considerably in the recent Pre-Budget Report.
“However, the biggest uncertainty surrounds household spending which has slowed sharply, reflecting the impact of a stabilising housing market, weaker growth in real post-tax incomes and the past interest rate increases.
“There is a possibility that we will see, into the New Year, that households will save more of their incomes because of concerns over debt levels, the adequacy of retirement incomes or the prospect of higher taxation ahead. Therefore, household spending may continue to fall and the state of the retail sector will be a crucial pointer for the Bank of England when it next decides where interest rates should go.”
