[ 2011-08-05 ]

UK Interest Rates Remain At 0.5%
U.K interest rates have been kept at a record low
of 0.5% by the Bank of England's Monetary Policy
Committee (MPC).

Economists had expected interest rates would
remain unchanged due to the subdued economy. GDP
figures for the second quarter showed growth of
0.2%.

A majority of economists polled by the BBC expect
interest rates to remain unchanged until next
year.

The Bank also kept its programme of quantitative
easing at £200bn. The decision came as no
surprise to economists.

“Unchanged interest rates were always a
nailed-on certainty”, said Howard Archer, chief
UK economist at IHS Global Insight.

In the BBC survey of 32 forecasters, who are also
regularly polled by the Treasury, 26 predicted
that rates would not rise this year, and three
predicted there would be no rate increase until
2013.

More than half expected the Bank rate to rise from
its record low of 0.5% to at least 1.5% by the end
of 2012.

The MPC's decision comes after the CPI measure of
inflation fell to 4.2% in June, still well above
the bank's 2% target.

Economists say rising prices do not necessarily
mean the Bank has to raise rates.

“There is a certain amount of inflationary
inertia in the UK. The Bank of England has
explained it often in terms of one-off shocks, but
at the end of the day these one-off shocks keep
materializing, such as higher utility bills this
year,” said said Sean Malony a bond strategist
at Nomura.

Instead of raising rates some business leaders are
calling for the bank to consider expanding its
quantitative easing programme – designed to
increase the amount of money available to
companies.

“Every effort must be made to sustain the
recovery. If the economy weakens further, the MPC
should not hesitate to increase the QE programme,'
said David Kern, chief economist at the British
Chambers of Commerce.

The Bank of England will publish its latest growth
and inflation forecast on 10 August and it is
expected to lower its predictions for economic
growth.

Both the CBI and the National Institute of
Economic and Social Research have downgraded their
own growth forecasts for 2011 to 1.3%.

The Bank is currently predicting growth of 1.75%.
Economic surveys released this week have painted a
mixed picture of economic growth. On Monday, a
Markit/CIPS survey of the manufacturing sector
showed the first contraction for two years in
July. However, a survey from the same source on
Wednesday showed a surprise pick-up in the rate of
growth in the service sector.

The bank will also be monitoring developments in
Europe and the US – the UK's largest export
markets.

European stock markets have been falling on
worries about the eurozone debt crisis and US
economic growth.

Source - Daily Guide

... go Back