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June 9, 2010    

BoE expected to keep interest rates on hold despite inflation concerns

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by Kay Murchie

The Bank of England’s Monetary Policy Committee (MPC) is tomorrow expected to keep UK interest rates on hold at the historically low level of 0.5% for the 16th consecutive month.

Furthermore, all nine members of the MPC are expected to keep the quantitative easing programme (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.

Meanwhile, the latest official data shows that British annual inflation reached a 17-month high in April.

The CPI inflation rate is a benchmark for the Bank of England’s MPC.

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.

Howard Archer, chief Britain economist at IHS Global Insight, comments: “Despite consumer price inflation spiking up to 3.7% in April - nearly double its 2% target level -the Bank of England’s Monetary Policy Committee is still odds-on to keep its key interest rates down at 0.5% for a 16th successive month at the conclusion of their June meeting on Thursday.”

The Bank of England will announce its decision at 12.00pm tomorrow.

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