UK interest rates remain at historic low of 0.5%
THE Bank of England today kept interest rates at their historic low of 0.5%.
The Bank has left rates unchanged at the historic low of 0.5% since March 2009.
The Monetary Policy Committee was not tempted to increase the £200bn ceiling on the quantitative easing programme.
The Bank’s strategy to hold interest rates has triggered predictions that the base rate could remain below 1% for months to come.
Ian McCafferty, CBI chief economic adviser, said: “The MPC’s decision to maintain its current stance was widely anticipated, and it is likely to keep things on hold a little longer. The interesting question is what will happen as we move into 2011.
“There is a lively debate between MPC members. Some fear that the weakness of the domestic economy will drive inflation well below target, thus requiring further monetary stimulus.
“Others think the medium-term inflation outlook is less benign owing to imported raw material costs and loosening inflation expectations. With the economy likely to be sluggish over the winter, this debate is unlikely to be resolved in the near term.”
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.
Graeme Leach, chief economist at the Institute of Directors, said: “We think there is now a greater risk of a double-dip recession from a mistake in monetary policy, not fiscal policy. Money supply growth is not strong enough to be confident of a sustained economic recovery.
“We need to see an established private sector recovery before the public sector recession begins. A further extension in quantitative easing before year end could help avoid that double-dip. Yes QE is a crude instrument but it’s the only one available at present. As fiscal policy tightens monetary policy needs to be eased.”
Nida Ali, economic advisor to the Ernst & Young ITEM Club, said: “The Monetary Policy Committee’s (MPC) decision to keep interest rates unchanged was no surprise. Assuming that fiscal policy is tightened as planned, we expect the Bank Rate to remain at the current level of 0.5% for several years.
“The more interesting aspect of this month’s meeting will be revealed in the MPC’s minutes. There could well have been a three way split in the MPC’s vote – provided Adam Posen followed up his recent forthright comments, with a vote for further Quantitative Easing.”
