Bank of England holds interest rates
THE long-running freeze on interest rates continued today as the Bank of England’s Monetary Policy Committee refused to bow to inflationary pressures.
The MPC has decided to hold interest rates again at 0.5% while the Quantitative Easing programme was also kept at £200bn.
Economists have been split for some time now on when the committee will change policy and at what point the recovering economy can sustain an increase.
Inflation estimates have been revised upwards in recent days with predictions of a 5% peak this year now increased to 5.2%.
The revision has been prompted by concerns over the rising cost of oil, Scottish Power’s big price increases and escalating food prices. All these factors are thought to have played a role in the committee’s decison to keep rates as they are.
The IMF’s endorsement of the Government’s deficit reduction strategy and better news on manufacturing may also have had a bearing, with any moves to destabilise sterling and weaken export potential classed as undesirable.
The no-change attitude will be welcomed by business leaders in the West Midlands, who had urged the MPC prior to today’s decision to maintain rates as they were in order to encourage growth.
They had said that manufacturers needed encouragement in order to support their export strategies, which have been pinpointed as vital in helping to rebalance the economy.
Richard Halstead, Midlands region director of EEF, said: “This decision is no surprise as even though inflation is still coming in uncomfortably high, the medium-term economic picture remains murky. With weak underlying growth, ongoing Eurozone troubles and volatile commodity markets, it is still too early for a rate rise.
“The more interesting news is likely to come later this month when we see if the new member shifts the balance of views on the committee. However, it still seems a move on rates will not be forthcoming until the economic outlook becomes much clearer.”
Sara Fowler, senior partner at Ernst & Young in the Midlands, said: “It has been a long time since we have seen interest rates change and the decision to remain at 0.5% will be a small consolation to businesses in the Midlands who have seen Britain’s economy grow by just 0.5% in the first quarter of 2011, according to the Office for National Statistics.
“Midlands businesses should focus their efforts on export led recovery by forging inroads into and building strong relationships with the emerging economies.
“With the current fragile nature of the UK’s economy, it is in the interest of West Midlands plc that the MPC holds its position in the coming months. Interest rates stability will provide a platform for regional businesses to build on for the rest of the year.”
