Interest rates held again

THE Bank of England today kept interest rates at their historic low of 0.5% for the 19th month in a row.

The Bank’s strategy to hold interest rates has triggered predictions that the base rate could remain below 1% for months to come.

The Monetary Policy Committee was not tempted to alter its stance after the rapid GDP growth seen in the UK economy in the second quarter and also maintained the £200bn ceiling on the quantitative easing programme.

Bank of England governor Mervyn King has previously warned that the recovery remains fragile and with the full effect of public sector cuts yet to feed through a growing number of economists are now forecasting a prolonged period of low interest rates.

Peter Hensman, global strategist at Newton Investment Management, said: “As expected, the Bank of England left its stance on monetary policy unchanged. This is despite growing speculation that the Bank of England will return to increasing the assets purchased under its quantitative easing programme.

“Recent data have indicated a softening in the pace of the recovery in the UK and 10-year gilt yields have declined to below the lowest levels witnessed during the height of the credit crunch as risk aversion has returned to global markets. Absent a further global shock, the prospect of further policy easing for the Bank seems unlikely.”

Lai Wah Co, the CBI’s dead of economic analysis, said: “There has been no change to monetary policy, as widely expected. In recent weeks there has been more talk about the need to expand monetary policy, amid concerns about how quickly growth momentum will fade in the coming quarters at home and abroad. However, economic indicators still suggest the UK recovery is on track, although we expect it to be bumpy and slow.
 
“Our view is that monetary policy is likely to stay on hold for a while, as the Bank monitors economic developments.”