Interest rates stay at 0.5%

THE Bank of England has held interest rates for the 11th successive month.

And the Bank today decided not to extend its quantitative easing programme of pumping money into the economy. 

Reacting to the Monetary Policy Committee’s decision to hold UK interest rates at 0.5%, Peter Hensman, global strategist at Newton Investment Management, said:

“As expected, the Bank of England left interest rates and the scale of asset purchases under its quantitative easing program unchanged. 

“With the Bank having completed the full amount of the addition made to its gilt purchases – £198bn of the £200bn of bonds purchased have been gilts – bond markets will now have to operate without this support. 

“While there has not been the increase in broad money supply that the Bank set out initially as its criterion for judging the QE program to be a success, the evidence of more normal function returning to financial markets and the signs of stabilisation in the broader economy justify at least a pause in the Bank’s efforts. 

“Given the widespread perception of the fragility of the recovery, indicated by the sluggish 0.1% increase in GDP in quarter four and the likelihood of fiscal consolidation ahead, this is unlikely to mark the start of an aggressive move to tighten monetary policy.”

Gary Lumby, president of Leeds Chamber of Commerce, said: “Over the next 12 months the MPC will be faced with the crucial task of balancing low interest rates and low inflation.

“In the short term, the Chamber expects rates to remain on hold, however inflation has already started to rise and we expect to see further increases as energy and food prices rise and on the back of the money already pumped into the economy. However we expect this to be a modest increase followed by a period of low interest rates and low inflation.
 
“This recession has been like no other witnessed previously, so although the economy has now officially returned to growth it is difficult to predict how exactly the country will recover other than it will be slowly.

“As far as the business community is concerned we need the MPC to recognise that low interest rates play a pivotal role in economic recovery and businesses leading the country out of recession.”