Interest rates remain at 0.5 per cent for 28th consecutive month
The Bank of England's Monetary Policy Committee (MPC) has voted to keep interest rates at 0.50 per cent for the 28th consecutive month against a background of high inflation, low consumer demand and poor economic data released over the last week.
The committee also voted to maintain the asset purchase programme or quantitative easing at £200 billion.
Howard Archer, Chief UK & European Economist for IHS Global Insight said: “The Bank of England's decision to keep interest rates down at 0.50% despite well above-target and likely to rise consumer price inflation reflects serious concerns within the MPC over both the current softness of the economy and the outlook - particularly given that fiscal tightening increasingly kicked in from April and that the global economy is currently struggling.”
In the second meeting since new member Ben Broadbent replaced Andrew Sentance it seems likely that the hegemony over the decision to keep interest rates at 0.5 per cent is likely to continue because Mr Broadbent voted with the majority of his colleagues to keep rates at their historically low level whereas Mr Sentance had led the argument for a rate rise. The voting pattern in the last meeting reflected this with 7-2 voting in favour of holding base rate as opposed to 6-3 in May, the last time Mr Sentance was part of the MPC.
Ewan Edwards, head of retail products at N&P, said: “Keeping the Bank Base Rate at 0.5% is not unexpected given the fragility of the UK economy, and continued uncertainty in the Eurozone, particularly Greece.
“While keeping the rate so low is helpful to borrowers, they should be mindful that there is likely to be a rise over the next six to twelve months, so this simply gives them a little more breathing space to review their mortgage and maybe consider finding a good fixed rate deal.”
Most analysts are now factoring in a rate rise during 2012 but with the UK economy struggling by most measures the date when interest rates will rise continues to be pushed back. The first estimate of GDP growth for the second quarter of 2011 will be released by the Office for National Statistics (ONS) towards the end of July and this data could give a clearer indication.
Mr Archer added: “It now looks probable that an interest rate hike will be delayed until 2012, and very possibly well into the year. Indeed, mounting growth concerns mean that if the Bank of England does act this year, it is more likely to relax monetary policy through reviving Quantitative Easing rather than to raise interest rates.”
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