Interest rates remain at 0.5 per cent

Friday 8th January 2010

Interest rates in the UK have been held at 0.5 per cent with quantitative easing also remaining unchanged, the Bank of England has announced.

Following the latest decision of the bank's Monetary Policy Committee, interest rates were kept unchanged; the last time they were altered was in March 2009.

In the widely expected decision, quantitative easing was also held at £200 billion.

Howard Archer chief UK & European economist at IHS Global Insight said following the announcement: "Bank of England inaction on both quantitative easing and interest rates was pretty much a nailed-on certainty.

"The MPC were always likely to remain in 'wait and see' mode given that November's £25 billion extension in quantitative easing will last through to early February, the economy seemingly returned to growth in the fourth quarter of 2009, latest economic data and surveys have been more upbeat overall and tentative signs are emerging that money supply growth and bank lending could be picking up.

"February will be a key month for the MPC, but we believe that the odds currently favour them announcing at least a temporary pause in the quantitative easing programme as well as continuing to keep interest rates at 0.50 per cent."

He continued: "However, with sustainable, significant recovery very far from guaranteed, any policy tightening still looks a long way off and we expect interest rates to stay down at 0.50 per cent until at least late-2010. Indeed, the Bank of England could very well delay raising interest rates until 2011.

"Furthermore, the eventual increases in interest rates are likely to be limited to counter the restrictive impact of the tight fiscal policy that will increasingly have to be enacted from 2011/12 to rein in the bloated public finances."

Stuart Law, chief executive of Assetz, also commented: "It is no surprise that the Bank of England has decided to keep interest rates at the all-time low of 0.5 per cent this month.

"However, there remains a possibility that there may be some movement on interest rates this year, but probably not until well after September at the very earliest, if at all this year. If rates do rise this year, we expect the end of the year base rate to be no higher than two per cent."

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