UK interest rates remain unchanged at 0.5%

| May 7, 2009
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As widely expected, the Bank of England has kept interest rates unchanged at 0.5% today for the second month in a row.

The Bank has embarked on aggressive cuts over recent months to bring inflation down and fight off a prolonged recession.

Many analysts said a further rate cut would have had little benefit since banks are unlikely to pass the cut onto borrowers but it would continue to impact negatively on savers.

Since October, interest rates have been reduced from 5% to 0.5% – the lowest level since the Bank was established over 300 years ago.

Since there has been little room for further rate cuts, in a bid to boost the economy the Bank pressed ahead with quantitative easing (also known as printing money) – a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital. The aim is to increase lending levels in commercial banks.

However, the British Chambers of Commerce (BCC) said the recession is “severe” and the organisation is concerned that the quantitative easing strategy needs to be more effective.

David Kern of the BCC said the asset purchase programme needs to be stepped up a gear and the second £75 billion instalment needs to be implemented.

The Bank has said that it will inject £75 billion into the economy in the next few months, with a further £75 billion available if required.

However, despite reports of late that the recession could drag on, there are hopes that the worst is over after the services, manufacturing and construction sectors have showed modest improvements over the last week.

In related news, the European Central Bank is expected to announce a cut in interest rates for the euro zone later today.

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