Interest rates held despite recession fears
The Bank of England’s Monetary Policy Committee is due to meet today, when it is expected to keep interest rates at a record low of 0.5 per cent, despite inflation soaring.
It will be the 32nd consecutive month that the interest rate has been held at this level.
According to the Consumer Price Index, inflation hit 5.2 per cent in September, almost triple the Government’s target.
There is increasing concern that the UK economy could fall into recession in the final quarter of 2011, but a further increase in quantitative easing (QE) is not anticipated.
Last month the MPS increased QE by £75 billion in an effort to boost the economy, but the situation has continued to deteriorate.
However, analysts believe that further action could be taken early next year if the economy continues to flounder.
The ongoing eurozone crisis is considered by the Bank of England to be a major threat to the UK’s economic recovery, and EU leaders remain unable to agree on a solution.
Greece, Portugal and Ireland have already sought bailout funding after their borrowing costs reached critical levels and there is now concern that Italy could also be forced to seek help.
Italy’s difficulties caused the Confederation of British Industry to reduce its growth forecasts for the UK economy from 1.3 per cent to 0.9 per cent for 2011.
It also downgraded its forecast for 2012, from 2.2 per cent to 1.2 per cent.
The crisis in the eurozone has caused international demand for UK goods to fall, with the trade deficit widening to £9.8 billion in September from £8.6 billion in August.
This morning, there was speculation that Germany was planning to create a two-tier eurozone, with struggling countries leaving the single currency.
This has been denied by Germany’s chancellor, Angela Merkel.