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Rates stay at record low of 0.5%

The Bank of England has kept interest rates at a record 0.5%, but stopped short of taking emergency action to kick-start the faltering UK economy.

Fears that the UK is facing a double-dip recession have fuelled expectations that the Bank's Monetary Policy Committee (MPC) will extend its £200 billion quantitative easing (QE) programme - effectively printing more cash.

Business leaders and economists say there are strong arguments in favour of upping the QE stock, but accept action is unlikely until later in the year.

Such a move would be a high-risk strategy because it could fuel inflation, which is well above target at 4.4%, and put more pressure on household budgets.

Soft manufacturing growth, a contraction in the powerhouse services sector and increased global uncertainty - reflected in recent stock market turmoil - have prompted a raft of forecasters to slash economic predictions.

The OECD warned it fears the world economy is close to grinding to a halt as increased uncertainty hampers growth. Its central forecast for the UK in the final quarter of 2011 is for annualised GDP growth of just 0.3%, compared with 2.5% growth last autumn.

And Chancellor George Osborne this week signalled that GDP forecasts were set to be downgraded in his autumn statement on November 29. However, he insisted that the Government would stick to its deficit reduction plan, which he described as "the rock of stability upon which any sustainable recovery depends".

The British Chambers of Commerce (BCC), which recently downgraded the UK's growth prospects, said the MPC needs to boost business confidence. BCC chief economist David Kern said: "The MPC must keep interest rates as low as possible for as long as possible, and will have to start thinking about an early injection of additional QE."

Ian McCafferty, the CBI's chief economic adviser, said it is still too early to be certain that more policy action is required from the Bank. He added: "We hope the UK economy will be on a firmer footing by next year, when a lower inflation rate will bring some relief for households. However, the global downside risks remain acute, so the Bank must continue to monitor global developments very closely and be prepared to be flexible."

MPC member Adam Posen has been the Bank's lone voice in calling for more QE but minutes of last month's meeting showed other members were now considering the option. Two members also dropped calls for higher borrowing costs.


From Belfast Telegraph