Interest Rates Held at 0.5%

Bank of EnglandThe Bank of England‘s Monetary Policy Committee has voted to keep the bank base lending rate at 0.5% and there will be no further quantitive easing.

The decision comes as no surprise but the degree to which members of the MPC voted will only become apparent when the minutes of today’s meeting are published.

The last meeting of the MPC saw two members vote for a rise in the base interest rate, which is becoming in increasingly likely as ways to rein-in inflation are sought. The last inflation rate figure, 3.7% in December 2010, is nearly double the target figure of 2%.

With the UK economy in a surprise 0.5% decline for the last quarter of 2010, there are fears that economic growth could be stifled by high inflation, led by fuel and food prices, but the historically low interest rate is seen as an aid to economic recovery. The 0.5% base interest rate has been in place now for a record 23 consecutive months.

The MPC’s decision will not have been an easy one as economists battle to control inflation without reducing demand to such an extent that it stifles growth, however, Mervyn King the Bank of England governor will still have to write his usual letter to the Chancellor explaining why inflation is not under control.

King previously forecast that inflation could rise to as high as 4 or 5% in the coming months but is expected to fall back sharply in 2012.

The interest rate is still expected to rise during 2011 although most speculation is that this will not happen until Q2 of this year according to predications from the CBI.

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