UK interest rates and QE remain on hold

| March 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%, 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 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, the Bank has recently come under pressure to lift rates as it is forced to combat stubbornly high inflation.

Inflation is currently running at 4% – double the target but the Bank of England has said inflation will fall back to its target by 2012.

Inflationary pressures are rife throughout the world and many central banks are opting to lift rates to tame inflation.

Meanwhile, earlier this week, the British Chambers of Commerce (BCC) urged the Bank of England not to increase interest rates this month.

However, it is expecting the central bank to lift the base rate in May but said such a move would be “premature and risky”.

In addition, accountancy firm PricewaterhouseCoopers called on the Bank not to raise interest rates before the economic recovery is secure – despite inflationary pressures.

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 B CC, the CBI and the NIESR expect three interest rate rises this year.

Since last June, Andrew Sentance has voted for interest rates to be lifted to bring inflation down. Fellow policymakers, Martin Weale and Spencer Dale 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 March.

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