Bank of England holds rates at 0.5% again

Bank of England holds rates at 0.5% again

14:53 PM, 9th June 2011, About 13 years ago

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Bank of England LogoThe Bank of England voted to keep base rates at 0.5% for another month and to keep quantative easing at £200 billion.

The rate has not moved since March 2009 and quantative easing has remained locked at £200 billion since November 2009.

Few financial pundits are surprised by the decision as in the past few weeks, dissent within the bank’s monetary policy committee has been diluted by the replacement of interest rate hawk Andrew Sentance with moderate Ben Broadbent.

Inflation pressures have also reduced – although announcements that energy prices will rise by 19% for gas and 10% for electricity in the autumn will likely push rates up to nearer 5.5% later in the year.

Business and finance analysts consider the bank to be waiting for clear evidence that Britain’s economy is back on track and robust enough to handle an interest rate rise before acting.

Ian McCafferty, chief economic adviser at the Confederation of British Industries, said: “This decision is not surprising. Although the recovery is expected to make further headway into the second half of the year, households continue to face particularly challenging conditions, and business confidence remains fragile.

“With further price pressures in the pipeline, the bank needs to remain vigilant to prevent inflation expectations picking up further. In acting sooner rather than later, the bank can ensure that future rate rises will be only gradual and modest. At any stage in the cycle, the last thing business needs is an abrupt and aggressive set of rate hikes.”

Chief economist Barry Naisbett, of high street bank Santander, echoed the consensus.

“After three monetary policy committee members voted to raise rates last month and with inflation at 4.5% being well above its target rate, today’s decision to hold rates is likely to have been another split vote,” he said.

“The Bank of England’s latest inflation report pointed out that inflation is expected to rise further in the months ahead, with the recently announced energy price rises pushing inflation up.  But with the economy as a whole showing a flat picture over the past two quarters, the MPC has been ‘looking through’ this anticipated rise and expects inflation to fall back next year.”

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