Bank of England decides interest rates remain at 0.5%

The Bank of England has voted to keep interest rates at 0.5%, despite speculation that its Monetary Policy Committee (MPC) was ready to announce a hike this month.

However, Bank of England Governor Mark Carney said the UK economy has not met the Bank’s expectations over the past three months.

Growth and inflation have also both been lower than the Bank’s forecasts in February.

The Governor said that this softening is probably a temporary blip, due to the adverse weather conditions which hit Britain earlier this year, particularly the construction industry.

MPC members voted by a majority of 7-2 to maintain bank rate at 0.5%

The decision will rile savers, but will be seen as a boon for small businesses, particularly retailers, many of whom are struggling to pay rents and rates.

Even established retailers, like House of Fraser, are locked in talks with their landlords in a bid to bargain better terms.

Kevin Doran, chief investment officer at Manchester investment platform AJ Bell, said: “It seems that the recent soft spot in UK data was enough for Carney & Co to revert back to unreliable boyfriend mode once again.

“Today’s announcement heaps more pain on savers who have already lost a third of their purchasing power over the past 10 years as inflation has comfortably outstripped the meagre interest earned on their cash.

“The prospect of a tight labour market, a bubbling crude and weaker sterling seems set to only stoke inflation higher in coming months, with little solace on offer from the Bank.”

He added: “In a world where other central banks are seeking to normalise their rates, the combination of slow growth and Brexit uncertainty must surely be raising some concerns about the size of the current account deficit.”

Meanwhile, Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: “Few would have predicted today’s decision to hold interest rates if they’d been asked just a couple of weeks ago.

“The probability of a rate change in mid-April was more than 80%, but by the beginning of this week it had plummeted to below 20%.

“This collapse of confidence in the interest rate rise reflects the transient nature of currency-driven inflation, but may also reflect wider concern around the UK economy.

“Quarter one saw GDP mark its slowest rate of growth since quarter four 2012, and while the Beast from the East had some impact, we cannot attribute the seasonal weakness to snow alone.

“While labour market tightness should be supportive for wage growth and inflation, Mark Carney is right to exercise caution in the face of such weak data.

“What is clear is that productivity must remain a clear priority for the Chancellor.

“A breakthrough here is needed to accommodate wage growth and support consumer spending, as well as acting as a catalyst for business investment.”