Katrina ripples will affect base rate

National Australia Bank is predicting that the Bank of England’s Monetary Policy Committee will opt to ‘wait and see’ when it comes to September’s base rate decision.

The bank cites the devastation caused by Hurricane Katrina in New Orleans as a factor that will push up oil prices and says this will be one reason the MPC will not change rates.

Tom Vosa, chief executive of NAB, says: “With the August vote to cut rates far closer than expected, it is doubtful we will see more changes until 2006.

“Also, recent data casts doubt on whether the UK economy is slowing as much as suggested.

“The 0.5% growth reported by National Statistics in the second quarter is a small but significant step up from the 0.4% pace seen between January and March.”

Vosa adds that the housing market seems to be stabilising and though house prices continue to trade sideways, activity is picking up with mortgage approvals reaching a 12-month high of 97,000 in July – above the long-term average.

F&C Asset Management is also concerned about the repercussions of Hurricane Katrina. It says the estimated US$25bn worth of damage will cause problems with oil supply and distribution which will push prices to record highs.

F&C says the rise in the oil price will affect consumer spending and aggregate demand at some point, and could lead to higher inflation.