Rates held at record low amid fears over recovery

THE Bank of England today resisted pressure to raise interest rates as the cost of borrowing remained at its record low of 0.5%.

Continuing fears over the fragility of the recovery led the Monetary Policy Committee to vote for no change – despite one member, Andrew Sentance voting for an increase to 0.75% last month because of concerns over inflation.

The MPC also opted to leave quantitative easing at £200bn.

Mr Sentance – who is known as the MPC’s leading hawk – has said he believes there
is enough positivity  in the economy to absorb a rate hike. Inflation has been above the 2% target since last November and is currently at 3.4%.

On the flip side though, recent data has flagged up slowing growth among manufacturers and services firms and growing fears over a double-dip recession.

Two of the main factors that have stoked inflation over the past six months – rising oil prices and weaker sterling – have also eased in recent weeks.

The Bank of England’s own credit conditions survey last week warned of a second credit crunch, with mortgage availability expected to worsen during the third quarter of the year as lenders find it harder to raise funds.

The housing market stalled during June, according to leading lender Nationwide – rising just 0.1%.

Interest rates were cut to 0.5% in March 2009. Just three years ago, at the height of the bull market, the cost of borrowing was 5.75%.