Interest rates held at 0.5%

THE Bank of England’s Monetary Policy Committee today resisted pressure to raise interest rates as the cost of borrowing remained at its record low of 0.5%.

The committee also voted to leave quantitative easing at £200bn.

Neither decision had been unexpected as the Bank looks to reduce pressure on the fragile economy and stay on track with its plan to keep inflation down to Government targets of 2%.
 
Chris Clifford, Regional Director, CBI West Midlands said: “There has been no change to monetary policy, as widely anticipated. The views within the MPC have become more divergent in recent months, with arguments in favour of both further easing and tightening of policy, reflecting concerns about the strength of the recovery and worries about inflation.

“After the strong gain in economic activity between March and June, growth is expected to be slower in the second half of this year, but the recovery continues to be supported by the current, exceptionally loose monetary policy. A move towards a gradual withdrawal of the monetary stimulus may be warranted in the coming months.”

Mark Smith, regional chairman at PricewaterhouseCoopers in the Midlands, said that given Governor Mervyn King’s recent comments to MPs on the Treasury Select Committee, today’s decision to keep rates on hold was expected.

“Despite the 1.1% surge in GDP growth in the second quarter of the year, Governor King believes a sustained recovery remains uncertain and there is still  ‘some distance to travel’ before interest rates come back to typical levels.

“Policymakers are likely to keep interest rates at their current record low and continue to prioritise growth for some months yet. There is also a possibility of more quantitative easing further down the line, which will further reassure Midlands  businesses and consumers, as they begin to come to terms with the likely impact of the government’s austerity measures.”

Ronnie Bowker, Ernst & Young’s senior partner in Birmingham, said the latest GDP figures had cast an element of doubt over today’s interest rate decision, but he was was pleased the MPC had decided to hold firm.

“Although the rise in GDP was the fastest quarterly increase since 2006, the economy is still fragile and needs nurturing back to health. Many commentators see this positive increase in GDP as a spike and are warning that the economy could fall back into recession or at least that the recovery will be slow and protracted.

“The full impact of the government’s spending cuts have yet to be felt by the business community, and only then can an informed decision be made about whether interest rates should be increased.

“The decision to hold has to be the most desirable course of action for some time,” he said.