BREAKING NEWS: Interest Rate held at 0.5%
BANK of England monetary chiefs tried to inject some stability into the economy today by voting to keep interest rates at their historic low.
The Monetary Policy Committee as expected voted to keep the cost of borrowing at 0.5% to try and calm the turmoil in the markets following the unresolved General Election and concerns over the Eurozone.
Today’s decision had been delayed from Thursday due to the General Election.
The decision, which also includes a freeze on quantitative easing, is in line with the Bank’s long-term policy of not risking any damage to the fragile recovery.
The Committee is thought to be unwilling to place any undue pressure on the fragile economy, which is still growing – but only just.
Figures have shown the UK recently moving out of recession faster than originally thought. However, economists have been unwilling to commit themselves to announcing a full-blown recovery as further obstacles could lie ahead, especially if inflation starts to peak again driven by rising fuel prices.
The weakness of Sterling also continues to be a factor, although many companies are benefiting from this in terms of export orders.
Following the decision, West Midlands business leaders said a swift political decision was fundamental for economic stability.
Paul Bassi, president of Birmingham Chamber of Commerce and Industry (BCI), said: “Monetary policy and fiscal policy come hand in hand and while the political situation remains unclear, the MPC has little room for manoeuvre. So the decision to keep interest rates and leave quantitative easing unchanged was expected.
“Economic recovery slowed in the first month of 2010 which emphasises the fragile state of the economy. GDP rose by just 0.2 per cent, a drop on the 0.4% recorded in Quarter 4 2009.”
Simon Topman, chairman of the West Midlands Chamber of Commerce, said: “The current political situation cannot continue without having a dire effect on the country’s economy. Speed on the political front is essential.”
Mark Smith, regional chairman at PricewaterhouseCoopers in the Midlands said: “With negotiations aimed at forming a new government still ongoing, Midlands businesses will be hoping that a consensus can be reached as swiftly as possible so that a concrete plan can be established to tackle the budget deficit and take the economy forward.
“While there has been some encouraging news on rising manufacturing output and exports in April, given the continuing economic uncertainty and the current lack of any clear plan to address the deficit, it is not surprising that interest rates have once again been held at 0.5%.”
“Recent comments by Bank of England governor, Mervyn King, regarding the prospects of low interest rates for many years to come will provide some reassurance to Midlands businesses and consumers. However, their thoughts are now turning to what the inevitable government budget tightening ahead will mean for demand for goods and services from the public sector and the money in their pockets,” he added.
Ronnie Bowker, senior partner Ernst & Young in Birmingham, said: “As the ITEM Club predicted in its Spring Forecast, 2010 going into 2011 will be challenging for businesses across the country. While there are green shoots, they remain seedlings, and low interest rates will continue to fertilise these shoots of growth.
“To kick-start the economy into growth, there is now a need for cash rich businesses that have been holding on to resources through the recession, to start investing and improve liquidity. A rise in interest rates might stall this process; so voting for rates to hold is the right course of action.”
