The pound fell against other currencies as UK Consumer Price Index (CPI) rose by more than expected in May, reinforcing the views of Mervyn King the governor of the Bank of England who warned that rising food and energy costs could push UK inflation higher than 4% by the end of the year.

UK CPI was up to 3.3% in May, compared to just 3% in April, this was mainly due to the rising cost of meat products and vegetables. An increase in energy bills was also an important factor, as well as rising book, stationery and foreign holiday costs.

Alistair darling yesterday urged mortgage lenders to cut the cost of home loans, as policy makers voice concerns about the housing market. The housing market has slowed over the past few months after years of double-digit growth and lenders, hit by the credit crunch have curbed new lending.

In a joint statement by lenders, they agreed that the Bank of England’s plan to allow banks to swap hard-to-shift mortgage assets for government debt would ease economic pressures and allow them to offer cheaper loans.

As most analysts predicted earlier on in the week The Bank of England today lowered the interest rate from 5.25% to 5% in an attempt to kick start the economy amidst the global credit crunch. It’s the third time the Bank of England has cut in interest rates since early December.

Recent problems in the money markets coupled with declining house prices have attributed to the decision. Business groups welcomed the decision and called for further reductions to shore up growth.

The MPC (Monetary Policy Commitee) keeps the Bank of England interest rates the same at 5.25%. This rate setting comes from thoughts of both market expectation and financial experts for 2008.

The fears of a slowing economy and pressures from inflation have pretty much forced stability on interest rates. The balancing act of inflation and growth will continue and is doing throughout the global economy.

There is it seems only limited scope for further interest rate cuts from the UK. The rate at which cuts will be implemented is to slow down sharply towards the end of 2008.

Inflation though will be over the target of 2% as set by the government and there are thoughts that the rise could be as much as 3%.

The Monetary Policy Committee does not plan to cut rares as much as the markets had anticipated. We know that there is a fine balancing act which needs to take place between interest rate cuts and the rise of inflation.

Analyst's say people are waiting in trepidation for the 1200 GMT UK interest rate decision from the Bank of England.

Consumer spending certainly makes the decision harder for the UK Bank as does the pressures of inflation. Economists are saying that rates may stay the same at 5.5% but that a cut down to 5.25% is possible.

If indeed UK Interest rates stay the same today it is thought a further reduction will take place in February.

In an attempt to save the economy the Bank of England looks set in offering lenders £11.4bn in funds.
This will of course lessen the credit crunch which has turned global.The focus is to help lending between commercial banks and retail which has risen in the last few weeks.

This follows a similar tact from the US federal reserve who through auction made 20 billion US dollars available.

Credit problems cannot be solved overnight but these measures may well help. Despite interest rates being cut in the UK and US lending rates have remained high.