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Interest rates held at record low

The Bank of England has given some breathing space to beleaguered households by maintaining interest rates at their record low.

In the week when Scottish Power announced an average hike of nearly £200 in annual power bills, members of the Monetary Policy Committee (MPC) have voted to keep the Bank's base rate at 0.5% for the 27th month in a row.

Earlier on Thursday, the owner of retailer Argos highlighted the brittle state of consumer confidence by reporting a 9.6% slump in sales at the catalogue chain and warning that trading conditions had been worse than expected.

Economists have put back the likely date for the next rise in rates to November as worries over growth prospects override concerns about inflation, which hit 4.5% in April, the highest level in two-and-a-half years.

Business leaders have welcomed the bank's stance and warned a rate hike would throw the economic recovery off course, particularly after GDP figures for the first quarter of 2011 showed tepid growth of 0.5%.

Ian McCafferty, CBI's chief economic adviser, said the MPC was right to wait for clearer signs that growth is gathering pace before changing its stance on interest rates.

He said: "Although the recovery is expected to make further headway into the second half of the year, households continue to face particularly challenging conditions, and business confidence remains fragile."

Borrowers are seeing the benefits of expectations that it will be some months before rates rise, with the average cost of a two-year fixed-rate mortgage falling to 4.41%, its lowest level since the beginning of the year.

But the delay is bad news for savers who will continue to suffer from low returns on their money at a time when high inflation is eroding the value of their deposits.

The Bank of England also announced on Thursday that it had left the scale of its quantitative easing programme to boost the money supply unchanged at £200 billion.

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