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May 19, 2010    

Bank voted 9-0 to hold rates in May despite inflationary pressures

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by Kay Murchie

Minutes of the Bank of England’s May meeting have been released today and have revealed that the Monetary Policy Committee (MPC) voted unanimously earlier this month to keep interest rates at the historic low of 0.5%.

Furthermore, all nine members of the MPC opted to keep the quantitative easing (QE) on hold.

QE, also known as printing money, is a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

Interest rates have stood at the record low since March 2009, when the Bank also embarked on its QE programme. At the time, the economy was in the midst of its worst recession in more than five decades.

The rate-setting meeting was due to be held on 5 and 6 May but was postponed two days as a result of the General Election.

The MPC said that while the UK economy was performing as expected, uncertainty had been raised due to the impact of debt crisis in some euro zone nations.

There have been fears that the debt crisis could spread to the UK, which has led to the new coalition Government to address its deficit sooner rather than later.

However, the former Labour Government warned that this could pose a threat to the economic recovery.

In the meantime, the Office for National Statistics yesterday announced Consumer Price Inflation (CPI) rose to a 17-month high of 3.7% in April.

The CPI inflation rate is a benchmark for the Bank of England’s interest-rate setting Committee and the 17-month high inflation rate may lead many to believe that interest rates could be hiked in the short-term.

However, Mervyn King, Governor of the Bank of England has previously dismissed fears that soaring inflation would demand a significant rise in interest rates in the months ahead.

Many analysts believe that inflation has now hit its peak and should start to fall in the short-term.

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