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Interest rates set to remain at 0.5%

08 July 2009 / by Rebecca Sargent

There is 'absolutely no doubt' that the Bank of England's Monetary Policy Committee (MPC) will keep interest rates at 0.5 per cent tomorrow, an industry expert has claimed.

The base interest rate has been at a record low of 0.5 per cent since April, and Howard Archer, chief economist at Global Insight believes it will remain this way for the foreseeable future, claiming that, "ultimately, we suspect that interest rates are set to stay at 0.5 per cent deep into 2010."

However, Mr Archer also predicts that unlike last month when no changes were made, it is expected that the MPC will announce an extension to its quantitative easing program.

The program currently allows the Bank of England to buy up to £125billion worth of Government gilts and corporate bonds, which in effect floods the economy with cash, but it is expected that the Bank will announce tomorrow that it is extending the amount to the maximum of £150billion.

Mr Archer said: "Despite recent significantly improved economic data and survey evidence that suggest that the economy could have stopped contracting in the second quarter and, possibly, even eked out marginal growth, there are clear indications that the Bank of England's MPC continues to have major concerns and uncertainties about the timing, strength, and sustainability of economic recovery."

In fact, Mr Archer goes as far as to predict that the Bank may well ask the Government for permission to increase the upper limit of £150billion for the cash injecting quantitative easing program.

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