Interest Rate Stays at 0.5%

For the 18th record-breaking month in a row the Bank of England’s Monetary Policy Committee has kept the base interest rate at 0.5%

David Kern, Chief Economist at the British Chambers of Commerce, said that interest rates must stay low until UK economic growth is more secure:

“The decision to leave interest rates and the quantitative easing programme unchanged was the correct one. However, uncertainty over future interest rate policy risks damaging confidence. Business will find it difficult to drive recovery without clear knowledge that interest rate rises are off the table for an extended period.”

“Persistent dangers of a global economic slowdown, combined with the weaknesses still facing the UK, make it very important for the MPC to persevere with expansionary policies. Any consideration of raising interest rates must be postponed until there is more conclusive evidence that growth is secure.”

“The Government’s tough deficit-reduction measures, although necessary to repair the public finances, will increase the threat of an economic setback. Since sustaining the recovery must remain the priority, it is absolutely vital that the MPC maintains the current low level of interest rates until the middle of 2011 at the earliest.”

The National Institute of Economic and Social Research (NIESR) also estimated, yesterday, that interest rates would remain unchanged but believe that "the rate of [economic] growth will continue to decelerate over the coming months." With these figures they believe, like the British Chambers, that the MPC will resist raising interest rates until summer 2011.

Regarding Quantitative Easing (QE), the injection of cash in to the economy, David Kearn stated:

“If the economy shows signs of renewed weakness, the MPC should not hesitate to increase the QE programme.”

This is a view reflected by the Institute of Directors, whose Chief Economist, Graeme Leach, added:

“The Bank of England has held fire for another month but we think the quantitative easing gun is about to be re-loaded and the order to shoot given.”

“Whilst above target inflation has stopped the MPC pulling the trigger on a further extension in QE this month, the economic threat from weak money supply growth looms ever larger.”

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