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UK interest rates held again

UK interest rates have been kept at the record low of 0.5% again by the Bank of England’s Monetary Policy Committee.

Recent data has underlined worries about the UK’s economic recovery, which analysts took as a sign that the Bank would leave rates unchanged.

This is despite the annual rate of inflation rising to 4.5% in April, up from 4% in March, and well above the Bank’s 2% target.

The MPC did not reveal any new quantitative easing measures.

Ian McCafferty, CBI Chief Economic Adviser, said:“This decision is not surprising as the MPC is waiting for clearer signs that growth is gathering pace before changing its stance on interest rates.

“Although the recovery is expected to make further headway into the second half of the year, households continue to face particularly challenging conditions, and business confidence remains fragile.

“However, with further price pressures in the pipeline, the Bank needs to remain vigilant to prevent inflation expectations picking up further. In acting sooner rather than later, the Bank can ensure that future rate rises will be only gradual and modest.

“At any stage in the cycle, the last thing business needs is an abrupt and aggressive set of rate hikes.”

Although the Bank was expected to leave rates unchanged, some members of the MPC have been urging an increase.

At the MPC’s meeting in May, policymakers voted six to three in favour of keeping rates on hold.

It was the fifth month in a row that three members had voted for a rise.

Economists say policymakers face a difficult choice: keep rates on hold to help economic recovery, or raise them to cool inflation.

But higher rates increase the cost of borrowing, and there are concerns this may hurt the economic recovery.

This was posted in Bdaily's Members' News section by Ruth Mitchell .