Belfast Telegraph

Interest rates held again as growth predictions slashed

By Ben Woods

The Bank of England has marked seven years of record low interest rates by keeping the cost of borrowing on hold once again.

All nine policymakers on the Bank's Monetary Policy Committee (MPC) voted to keep rates at 0.5%, where they have remained since March 2009.

The MPC said "little had changed" in its outlook for growth since it slashed its economic forecasts last month and warned the UK was being buffeted by "unforgiving" conditions in the global economy.

It also said there appeared to be "increased uncertainty" about the forthcoming referendum on the UK's membership of the European Union, which caused the value of sterling to plummet against the dollar.

It said: "That uncertainty is likely to have been a significant driver of the decline in sterling. It may also delay some spending decisions and depress growth of aggregate demand in the near term."

It also said the boost for the EU economy from improving credit conditions and lower oil prices was likely to fade, "placing more of a burden on policy to support demand".

The committee also stood by its stance that the next move for rates would be a rise rather than a cut, stating "it was more likely than not that Bank Rate would need to increase over the forecast period" to meet its inflation target of 2%.

The decision to keep rates on hold comes after the Office for Budget Responsibility (OBR) slashed its growth forecasts for the UK economy in Chancellor George Osborne's Budget on Wednesday.

It downgraded its forecast for gross domestic product from 2.4% to 2% this year, from 2.5% to 2.2% in 2017, from 2.4% to 2.1% in 2018 and from 2.3% to 2.1% in both 2019 and 2020.

The OBR also forecast lower inflation at 0.7% this year and 1.6% next year.

It said its forecasts were impacted by concerns over the global economy and its decision to revise down its expectations for productivity growth, which measures the amount of output the economy can produce against the number of hours worked.

The MPC said it would analyse the announcements in the Budget during its preparation for its report in May.

The Bank is expected to keep rates on hold at 0.5% until 2017 though global economy fears, the oil price rout and market turbulence lead some experts to predict that the Bank could cut rates over the coming months.

Belfast Telegraph