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Interest rates set to be held again

Signs of a weakening recovery are expected to see the Bank of England deliver its 18th consecutive decision to hold interest rates.

The Bank's policymakers will give their latest verdict at noon as recent economic indicators led to fears of a double dip recession.

Economists widely expect the nine-strong Monetary Policy Committee (MPC) to keep rates at 0.5% and to maintain its Quantitative Easing (QE) programme at £200 billion, with members torn between the pressures of stubbornly high inflation and faltering growth.

The MPC left rates unchanged at their historic lows since March 2009.

But a split was emerging among members, with above-target inflation leading Andrew Sentance to vote for a quarter point rate increase in each of the past three months.

Consumer Prices Index (CPI) inflation was 3.1% in July and warnings suggest cost pressures will worsen, with food prices expected to increase over the coming months.

Experts at Barclays Capital believe CPI edged up again in August, to 3.2%, which could leave the MPC facing a further dilemma.

However, the majority so far opted to prioritise the need to support the economy over efforts to rein in inflation and this is likely to remain the case for at least the rest of the year.

While the UK economy rose by a far-better-than-expected 1.2% in the second quarter, the signs point to slower growth since then.

Vicky Redwood at Capital Economics said the next move by the Bank was likely to be a boost to QE.

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