Interest rates held again by Bank of England

THE Bank of England opted to hold the base interest rate at 0.5% again today.

Concerns over rising inflation, spurred by the New Year VAT hike, failed to prompt the Bank’s Monetary Policy Committee (MPC) to increase rates for the first time in nearly two years.

In November, inflation hit 3.3% as measured by the consumer price index (CPI) – higher than the Bank’s 2% target.

The cost of borrowing has been set at the historic low of 0.5% since March 2009.

Economists expect it to remain low fearing any rise could hamper the fragile economy and contribute to a “double-dip recession”.

A rise may help to control inflation but it will also reduce the spending power of those with tracker mortgages and other debts.

West Midlands business leaders welcomed today’s interest rate decision.

Christine Braddock, president of Birmingham Chamber of Commerce and Industry, said the city’s struggling manufacturing sector will continue to be able to export because of the weak pound.

“Exporting is the way forward for many companies to invest in growth and create more jobs, so keeping interest rates low will help the economic recovery,” she said.

“The Government must also ensure that exporters are not at a disadvantage in key areas such as trade finance.

“The Chamber’s latest quarterly economic survey indicates that business confidence is still fairly high but to sustain this, interest rates do need to remain low.”

Mark Smith, regional chairman at PwC in the Midlands, said: “With increasing commodity prices and tax rises adding to inflationary pressures, there have been fresh calls for monetary policy to be tightened. However, the committee is likely to continue to resist raising the base rate until more is known about the impact of the government’s austerity measures on the wider economy. Further quantitative easing is unlikely in the immediate future as this would further add to inflationary pressures.

“Midlands businesses will be heartened by the committee’s desire to safeguard the economic recovery but they will be equally aware that 2011 could well see some adjustment of monetary policy unless we see inflation moving back towards target levels.”

Sara Fowler, Ernst & Young’s senior partner in Birmingham, said: “I am encouraged that today’s decision to leave interest rates where they are will support the UK’s fragile economy.

“The surging price of oil is playing its part in pushing up inflation and at the same time is eating away at consumers’ disposable income, creating a double whammy for the economy.

“There is also the impact this has on the West Midlands’ manufacturing industry, which is dependent on raw materials like oil. Manufacturers will really feel the heat of rising commodity prices so keeping interest rates low will be a welcome boost, helping to keep down the cost of borrowing.

“The next few months will be interesting as the battle between MPC hawks and doves plays out and I hope the MPC remains strong and resist the urge to increase interest rates.”