Bank of England holds firm on interest rates

BANK of England policymakers erred on the side of caution again today and opted to make no change on interest rates. The rate has now remained unchanged at 0.5% for more than four years.

The better-than-expected 0.3% growth in the economy during the first three months of the year – ensuring the UK avoided an unprecedented triple-dip recession – is thought to have persuaded the Monetary Policy Committee to avoid any change of course.

While the manufacturing and construction sectors remain subdued, it is thought the policymakers may be influenced by more encouraging surveys suggesting output will grow during Q2.

The impact of the Funding for Lending Scheme, which gives the banks more incentive to lend to SMEs, could also have been a factor in determining strategy, persuading the MPC from re-examining an extension of quantitative easing or buying up government bonds.

Most analysts now believe any change of approach by the Bank is unlikely until Mark Carney succeeds current governor Sir Mervyn King in July.

Welcoming the move, the Birmingham Chamber of Commerce Group said the fragile economy could not afford to suffer a setback.

Steve Brittan, BCCG president, said that overall business conditions remained  generally positive.  

“We daily hear of new contract wins and business success stories from members. Low interest rates are helping many businesses keep going,” he said.

“The banks say they are lending but it is whether businesses have the appetite to borrow.  Any moves to raise interest rates at a time when the economy is struggling however, would be hugely damaging to UK plc.  We are conscious of upward inflationary pressures and the MPC needs to keep an eye on this.”