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Interest set to stay at record low

Published 08/04/2010

Bank of England is expected to keep interest rates at a record low
Bank of England is expected to keep interest rates at a record low

Interest rates are expected to remain frozen at their record low when the Bank of England announces its latest policy decision.

The Bank's Monetary Policy Committee (MPC) is forecast to hold the cost of borrowing at 0.5%, while it is also unlikely to alter the £200 billion it has so far spent on quantitative easing (QE), or printing money, to support the economy.

Recent figures showed that the UK moved out of recession faster than originally thought in the fourth quarter of 2009. But economists believe there could still be bumps on the road to recovery, while the looming General Election may also play a part in a decision to keep things as they are.

Meanwhile, the fall in February's rate of inflation to 3%, from 3.5% in January, has soothed concerns about pressure on the Bank for rate hikes.

The minutes of the Bank's last meeting in March showed "different inferences" over inflation risks as some members worried that growing momentum behind recovery and a weak pound could keep it above the 2% target for longer. Others on the MPC were concerned that the "substantial and sustained" slack in the economy caused by a record recession could drag inflation below target.

Howard Archer, chief UK economist at IHS Global Insight, said it was almost certain that rates would be held.

"All nine members voted in favour of unchanged interest rates and quantitative easing at the March meeting and economic developments since then suggest there is no need to change tack," he said.

"Furthermore, it would be highly unusual for the Bank of England to adjust monetary policy at all in the run-up to a General Election unless there was a compelling economic case to do so - which there isn't - due to the need to be seen to be politically independent."

He predicted rates would stay at their current level for the rest of the year and subsequent rises would be "gradual" because of the need to counter the effects of a tightening in fiscal policy next year.

Mr Archer said he believed the Bank would aim not to add to its QE programme unless there was a sharp set back in the economy, with no unwinding of the policy expected until 2011.

Press Association

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