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Bank chiefs opt to hold interest rates

The Bank of England held interest rates at record lows yesterday as policymakers weighed up the impact of a eurozone bailout and a hung Parliament.

The Bank's Monetary Policy Committee (MPC) voted to hold rates at 0.5% and left its £200bn programme to boost the money supply unchanged.

Despite worries over inflation, the current political and economic uncertainty will have reinforced the MPC's "no change" stance with the UK making a fragile recovery from recession.

Rate-setters have failed to budge since November and are unlikely to move until plans for the UK's public finances have been set out by a new Government and the economy starts to recover.

The MPC is attempting to balance the unexpected stubbornness of above-target inflation with the need to support a still-weak UK economy.

According to official estimates, UK growth slowed to 0.2% in the first quarter of 2010 - but the MPC was unnerved last month by a bigger-than-expected rise in the benchmark Consumer Prices Index (CPI) in March to 3.4% - well above its 2% target.

The bank had expected CPI to fall back sharply later this year and in 2011 as VAT and energy effects fade and the vast amount of slack in the economy kicks in.

The committee had the details of the Bank's latest quarterly inflation report - to be published on Wednesday - to make their decision and economists will scour the document for any hints of a change of direction on rates and quantitative easing.

Angela McGowan, chief economist of the Northern Bank, said the lack of change was no surprise.

"The first post-election MPC meeting was never expected to deviate from the historically low interest rate stance that has prevailed in the UK since last year."

"A review of prices in the UK suggests the price of goods leaving UK factory gates has risen by 5.7% over the year - clearly factory owners are attempting to take advantage of the global recovery," she added.


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