Interest rates remain at 0.5 per cent despite inflation fears Go compare with our comparison table

Interest rates remain at 0.5 per cent despite inflation fears

06 August 2010 / by Lois Avery

Interest rates were kept at an all time low of 0.5 per cent yesterday sparking concern that the UK economy is not recovering as well as expected.

The Bank of England’s Monetary Policy Committee voted to keep rates unchanged for the 18th month running despite suggestions that the economy is recovering and fears about spiralling inflation.

The bank’s £200billion quantitative easing (QE) programme also remained unchanged.

Economists now believe that the rate will remain unchanged for some time as the economy enters a slow down following a period of growth during the first half of this year.

The move has suggested that the BoE does not see inflation as a real concern. Inflation is still well above the bank's target rate of 2 per cent on the Consumer Prices Index (CPI) measure.

However, experts widely agree that the MPC is doing the right thing in keeping the base rate low.

Speaking to the BBC David Kern, chief economist at the British Chambers of Commerce said: "The MPC made the right decision.

"The tough deficit-reduction measures announced in the Budget, although necessary, will inevitably increase the threat of a UK economic setback.

"Given the precarious economic background, it is absolutely vital that the MPC maintains the current low level of interest rates until the second quarter of 2011 at the earliest."

Caxton FX agrees, saying that whole the economy enters a period of uncertainty rates must stay low.

A spokesman said: "With budget cuts implemented and the debt crisis in the eurozone, the UK economy is unlikely to offer up the same level of growth in the third quarter as it did in the second. In fact economic figures for July already reflect a slight slowdown in activity.

“In the short term, the Bank can do little about inflation and so policymakers are likely to continue taking a wait-and-see approach whilst the outlook remains so uncertain.”

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