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Policymakers cautious as interest rates remain on hold

Interest rates have been kept on hold as policymakers maintained their "wait-and-see" approach ahead of Government plans to tackle the UK's deficit.

The Bank of England's Monetary Policy Committee (MPC) yesterday pegged rates at a record low of 0.5% and left its £200bn programme to boost the money supply unchanged after its two-day meeting.

The committee has not budged on policy since last November and will want to weigh up the impact of Chancellor George Osborne's emergency Budget - due on June 22 - on inflation before making its next move. The coalition has announced £6.2bn in spending cuts so far and rates may stay at record lows for longer to offset more of the likely pain ahead and prevent the UK sliding back into recession.

IHS Global Insight economist Howard Archer predicts rates to stay at 0.5% into next year, although the Organisation for Economic Co-operation and Development has said the Bank should wait no longer than the final quarter of the year before moving and expects interest rates to reach 3.5% by the end of 2011.

Meanwhile the European Central Bank (ECB) also decided not to change interest rates from 1%.