UK Interest Rates Kept On Hold at 0.5%
Sector: Banking & Finance
5th August 2010
The Bank of England has voted to keep interest rates on hold at 0.5% amid concerns over the strength of the economic recovery. The decision by the bank's Monetary Policy Committee (MPC) means rates will stay at their current record low for an 18th month. The Bank's programme of quantitative easing also remains on hold. Inflation is still well above the bank's target rate of 2% on the Consumer Prices Index (CPI) measure.
Last month CPI was at 3.2%, though it has been falling in recent months, and the Bank expects inflation to fall to close to the 2% target this year. Economists broadly welcomed the Bank's decision, arguing that low interest rates were still needed to aid the recovery in the economy, particularly with cuts in public sector spending expected to hit growth. "The MPC made the right decision," said David Kern, chief economist at the British Chambers of Commerce (BCC). "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."
Recent economic data has cast further doubt over the strength of UK economy. On Wednesday, the latest purchasing managers' index indicated that growth in the services sector had slowed to its lowest rate in more than a year.
Source: BBC News
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