UK interest rates remain on hold

| September 8, 2011
”UK

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%, as widely expected.

Interest rates have now been at this low level since March 2009 – when the economy was in the midst of recession.

Recent figures show the economy appears to be faltering so it was understood that the central bank is reluctant at this stage to lift interest rates as the recovery is losing momentum.

Some economists believe the bank will not lift rates again until 2013.

However, the Bank has come under pressure lately to lift interest rates to combat stubbornly high inflation – which is currently running at more than double the 2% target.

Inflation is forecast to reach 5% later this year.

Last month, policymakers Martin Weale and Spencer Dale dropped their call for higher interest rates and joined their fellow Committee members by opting to keep rates low to stimulate the recovery.

Meanwhile, a recent slew of weak data also points to low interest rates for the longer-term but some analysts believe the Bank of England should consider a fresh round of quantitative easing (QE) if weak economic growth continues – a scheme designed to boost the economy.

However, today the bank did not announce any fresh new measures with regard to its QE programme but it is believed the MPC may be reluctant to re-introduce its QE programme with inflation running so high.

Furthermore, it is not evident whether purchasing Government bonds would be successful as yields on most securities are hovering at all-time lows.

Earlier this week, Chancellor George Osborne admitted the economy is weak and that the recovery would be choppy.

However, despite the sluggish economic recovery, the Government is sticking with its deficit reduction plan.

Some have suggested the harsh plan could push the economy back into recession.
However, Mr Osborne continues to defend the cuts and he has deemed them necessary and fair in order to bring the budget deficit down.

Details of how the Committee voted will be published on 21 September.

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