Interest rates held again by Bank of England

THE long-running freeze on interest rates continued today as the Bank of England’s Monetary Policy Committee adopted a cautious approach ahead of this month’s Budget.

The MPC decided to hold interest rates again at 0.5% while the Quantitative Easing programme was also kept at £200bn.

It is less than two weeks now until Chancellor George Osborne delivers his first full Budget since the Coalition Government came to power last May.

Yesterday Coventry and Warwickshire Chamber of Commerce warned that business growth in the area could be wiped out if the rate was increased.

The business organisation called on members of MPC not to bow to inflationary pressures and urged them to look at the bigger picture.

Chamber chief executive Louise Bennett said that, while many experts claimed it was only a matter of time before rates went up in order to counter inflation, this was not what was needed to sustain the fragile economic recovery.

Economists have been split on how long the Bank will be able to withstand inflationary pressures with rising fuel and energy charges and the increase in the rate of VAT.

Mark Smith, regional chairman at PwC in the Midlands, said continued uncertainty about the strength of the economic recovery meant any tightening of monetary policy was still likely to be some months away, even in light of concerns over inflation.

“While the economy remains fragile, our view is that the committee should hold off raising rates for as long as possible, particularly as many of the current inflationary factors appear temporary.

“Midlands businesses will be hoping for further good cheer from this month’s Budget but with money markets pricing in rate rises before the end of the year, there is a growing acceptance that they will ultimately have to follow suit,” he said.

Richard Halstead, EEF Midlands Region Director, said the decision had come as little surprise.

“Last month’s inflation report pointed to a shift in the balance of risks around the Bank’s inflation forecasts over the next few years. However, the downward revision to GDP at the end of 2010 on the one hand and, on the other, continued rises in commodity prices will add to the MPC’s dilemma on when to move and how fast. Waiting for a clearer view of whether these factors are merely temporary still looks like the right move,” he said.

Birmingham Chamber of Commerce Group welcomed the move.

President Christine Braddock said: “The stability today’s decision will continue to bring is most welcome but rates will have to rise at some point this year to stave off increasing inflation.”

Mike Ashton, of West Midlands Chambers of Commerce, added: “We need to wait for a clearer picture to emerge as underlying growth remains weak. Members continue to cite cash flow and regulation as the main obstacles to growth and these issues need to be addressed in the Budget later this month through growth-supporting policies.”