Interest rates held for 12th month

THE Bank of England has held interest rates at the same level for the 12th month in a row.

The Bank’s Monetary Policy Committee (MPC) kept the rate unchanged at 0.5% and decided against increasing its policy of Quantitative Easing – the programme of pumping money into the economy.

Commenting on the Bank of England’s decision, Peter Hensman, global strategist at Newton Investment Management, said: “As expected, the Bank of England left policy unchanged at the meeting of the Monetary Policy Committee.

“While Governor Mervyn King has refused to rule out the possibility of a further extension to the quantitative easing program, the stabilisation in financial markets and nascent signs of economic recovery justify a wait-and-see approach to policy.

“Although the Bank will likely be comfortable with the recent weakness in sterling that should aid the rebalancing of the economy away from its dependence on consumer spending towards greater support from the export sector, the Bank is equally unlikely to want to be seen as the architect of a sterling crisis ahead of the general election were they to unsettle global investors with an unexpected easing of monetary conditions,” added Mr Hensman.

With recovery in the balance and with unemployment set to rise, particularly in the public sector, a rate increase was not going to be very sensible in the view of Leeds, York and North Yorkshire Chamber of Commerce.

Gary Lumby, president of Leeds Chamber of Commerce said: “Whilst growth figures were scaled up in Q4 to 0.3%, any continuing growth is certainly not guaranteed and the MPC and Government must do everything they can to counteract a double dip recession.

“There are some signs that a weak pound is assisting exports, particularly in manufacturing, and the Government’s business support should be focused in this area.

“Whilst inflation remains a threat, the recovery is too weak to risk by increasing VAT rates when in all likelihood any inflation will be short lived. The Chamber continues to urge the Government to look to businesses to lead the country out of recession and to put more business friendly policies in place and to cancel future National Insurance planned rises.”

Sonya Kapur, investment analyst at BNP Paribas Real Estate, said: “The Bank of England has now kept interest rates at a historical low of 0.5% for 12 months and we can comfortably expect the bank rate to stay at this level throughout most of 2010.

“Revised figures for GDP in Q4 to 0.3% have bought fresh hopes that the economy will continue its growth path that will lead to a stable, steady recovery. The MPC’s decision, as always, depends on the strength of the economy and although there are positive signs, it is still too early to even contemplate hiking interest rates up.

“An extension of QE would need to be balanced with the Chancellors inflation target – inflation is still stubbornly higher than its target of 2% at 3.5% and an extension in QE could cause inflation to move above its target rate again in the short term.

“The UK economy has only just, and slowly, emerged from recession, with only one quarter of positive GDP growth.  This is a clear indication that we need to have a sustained period of quarter on quarter growth to be sure the economy is back on its feet.”

Alan Hall, region director of manufacturers’ organisation EEF, said: “The MPC continues to face a mixed economic picture with growth at the end of 2009 helped by stimulus measures that have now all but gone.

“An unchanged position at this point is the right one given the ongoing uncertainty about the strength of the recovery, with the reality that any moves could be on hold for some months to come.”

Andrew Palmer, CBI regional director Yorkshire & the Humber, said: “This month it would have been surprising if the Bank had done anything else. In keeping its quantitative easing policy and interest rates unchanged, the MPC has weighed the recent, fragile improvement in economic activity against residual concerns about inflationary pressures and the weak pound.

“As the economic recovery has extremely shallow roots, the Bank should stand ready to continue with its quantitative easing programme, as required.”