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Bank of England holds interest rate at record low

Interest rates were kept at their record low today as the Bank of England admitted the UK's economic recovery was still too frail to withstand higher borrowing costs.

Just two months ago, commentators were predicting that policymakers would increase the Bank's base rate at this month's meeting due to fears over mounting inflationary pressures.

But the Bank's monetary policy committee (MPC) kept rates at 0.5% today after a spate of gloomy economic indicators, including lacklustre figures which showed growth in the UK had been flat for six months.

In addition, the rate of inflation unexpectedly slowed in April to 4% which, while still double the Government's target, eased pressure on the MPC to act.

Elsewhere, a survey today revealed a further slowdown in growth in the powerhouse services sector, while a leading thinktank, the National Institute of Economic and Social Research (Niesr), warned that growth would continue to be weak.

Economists believe the latest set of gross domestic product (GDP) figures last week - which showed a tepid 0.5% rise between January and March - killed off any chance of an interest rate hike today.

The Bank also left the scale of its quantitative easing programme to boost the money supply unchanged at £200 billion.

Ian McCafferty, the CBI's chief economic adviser, said the MPC's decision to hold rates was "not surprising".

He said: "While the recovery continues to make progress, recent economic data show that it is very patchy across sectors, and some parts of the economy remain fragile.

"However, pipeline inflationary pressures have intensified, with our economic surveys showing rapid cost inflation from increased energy and commodity prices.

"Our view remains that the Bank is likely to move away from the emergency 0.5% rate later this year."

Today's meeting was the last for MPC member Andrew Sentance, who has led calls for a rate rise by voting for a 0.5% increase to 1%.

The Bank left the scale of its quantitative easing programme to boost the money supply unchanged at £200 billion.

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