Belfast Telegraph

Unanimous vote to keep interest rates at 0.5% for the 29th month

By Graeme Evans

Bank of England members were united in keeping interest rates at a record low this month after two policymakers dropped calls for higher borrowing costs.

The nine-to-nothing vote in favour of leaving rates at 0.5% for the 29th month in a row followed a month in which members admitted the economic outlook had darkened, particularly in the face of the ongoing eurozone debt crisis.

Spencer Dale and Martin Weale, who have previously voted for rate hikes in order to curb inflation, joined other members including governor Sir Mervyn King in voting for no-change in the Bank's base rate.

The result will reinforce expectations in the City that rates are set to remain on hold for all of next year and possibly into 2013. In its quarterly inflation report last week, the Bank downgraded growth forecasts for the second time this year and warned the UK faces serious threats from Europe's debt storms.

Inflation is expected to peak at 5% this year, but today's minutes showed members thought slower growth prospects will reduce pressure on prices.

They also considered a further bout of quantitative easing and admitted that more asset purchases might be warranted should conditions deteriorate.

The prospect of an extended freeze in rates has already driven the price of a fixed rate mortgage to an all-time low as lenders factor in a longer spell with the Bank's base rate at rock bottom.

The rates meeting took place prior to most of the recent stock market turmoil.

It was also the first time that the Bank's monetary policy committee (MPC) had voted unanimously to keep interest rates on hold since May 2010.

Samuel Tombs, an economist at Capital Economics, said the minutes and unemployment figures supported his view that rates will remain on hold for a prolonged period - probably until at least the end of 2013.

"And while the continued rise in inflation this year may prevent the MPC from extending quantitative easing in 2011, we continue to think that further asset purchases are likely in 2012," he said.

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