UK interest rates to remain at 0.5% 'deep into 2010'

06 May 2009 / by Rebecca Sargent
The Bank of England is expected to keep interest rates at their current level of 0.5 per cent 'deep into 2010', analysts at Global Insight have predicted.

The Bank's Monetary Policy Committee (MPC) is due to announce its latest base rate decision tomorrow, and as the economy remains much the same as the month before, experts predict that interest rates will hold steady.

Commenting, Howard Archer, chief economist at Global Insight, said: "It seems a stone dead certainty that the Bank of England will leave interest rates unchanged at a record low of 0.5 per cent at the May 6-7 meeting.

"Indeed, interest rates seem likely to remain at 0.5 per cent deep into 2010. The Bank of England is now very much focussing on quantitative easing in its attempts to counter still very tight credit conditions and boost economic recovery prospects," he added.

According to Mr Archer, the Bank is also unlikely to bring interest rates below 0.5 per cent, as the MPC has indicated in the past that this could do more harm than good.

It is also feared that further cuts would not be passed on by lenders, some of which have already started increasing their standard variable mortgage rates, as Nationwide announced last week its SVR will be increasing to 3.99 per cent for new borrowers – 3.49 per cent above the base rate.

Meanwhile, Mr Archer also predicts that there are unlikely to be any further quantitative easing announcements, as the Bank is on course to purchase £75billion in assets through the issuance of central bank reserves.

"We believe the MPC will prefer to sit tight for another month to see more evidence on how this is working before deciding whether the programme needs to be extended and widened, or even curtailed," Mr Archer added.

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