UK interest rates and QE remain on hold

| February 10, 2011 | 0 Comments

The Bank of England’s Monetary Policy Committee (MPC) has today elected to keep UK interest rates on hold at the historically low level of 0.5% – primarily due to sluggish economic growth, according to economists.

Recent figures showed the economy contracted in the fourth quarter of 2010 so it was thought that the central bank may be reluctant at this stage to lift interest rates as the recovery is losing momentum.

However, there had been a slim chance of a rise in interest rates as the Bank has come under pressure to lift rates as it is forced to combat stubbornly high inflation.

Consumer Price Inflation (CPI) rose to an annual rate of 3.7% in December, up from 3.3% in November.

The figure was much higher than the 3.4% analysts had expected and inflation has now been above its target of 2% for over a year.

Many leading business groups have suggested that inflation could reach 4% – because of the recent VAT hike.

Meanwhile, the Bank opted not to inject any more funds into the economy via its quantitative easing (QE) scheme – introduced to stimulate growth within the economy.

Rate rises are on the cards this year and business groups including the CBI and the NIESR expect three interest rate rises this year.

At the last seven meetings, Andrew Sentance has voted for interest rates to be lifted to bring inflation down. Fellow policymaker, Martin Weale, also voted for an interest rate rise at last month’s meeting.

It is yet unknown how the members of the Committee voted but minutes of the meeting will be published on 23 February.

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