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Bank of England holds interest rate at 0.5%

The Bank of England has held interest rates at a record low of 0.5 per cent for the fourteenth consecutive month and kept the limit on its scheme of quantitative easing unchanged at £200 billion.

The move by the Bank's Monetary Policy Committee was widely expected despite recent upbeat data on the economy, as policymakers remain concerned about the strength of the recovery. Mervyn King, the Bank's Governor, has warned repeatedly that the economy will "bump along the bottom" for some time.

The MPC also remains concerned about the impact of future fiscal tightening on economic growth.

Some committee members have expressed concern about the 'stickiness' of inflation. The Bank's target measure of consumer price inflation is at 3 per cent, above the 2 per cent target.

These fears will have been allayed by figures out this week showing that food price inflation fell to a record low in March, further evidence that the spare capacity in the economy is acting as a lid on prices. Muted wage growth, which is rising by just 0.9 per cent a year, will also help to calm fears over rising inflation.

Howard Archer, chief UK and European economist of IHS Global Insight, said: "The May 6 general election essentially precluded the Bank of England from changing interest rates or quantitative easing given the bank's need to be seen to be politically neutral and independent, but the Monetary Policy Committee was never going to act anyway. There are very sound economic grounds for the MPC to keep policy on hold and to remain in 'wait and see' mode. For a start, the MPC will be keen to see if there are any significant changes to fiscal policy following the general election."

Philip Shaw, chief UK economist at Investec, said: "With the recovery unfolding gradually there seems little need for additional quantitative easing, and it remains too early to start tightening. The current super-easy stance of policy is therefore still appropriate."

The MPC will delay its rate meeting next month to avoid clashing with the election on May 6. The announcement will be now be made on Monday, May 10.

Source: TimesOnLine
Date: 09.04.2010 [244]
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