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Bank of England holds UK interest rates at record low

Article By: ,  Financial Analyst
January 9, 2015 11:26 AM

The Bank of England has confirmed that UK interest rates will remain at the record low of 0.5 per cent for another month.

Economists noted that a combination of low inflation, concerns over economic recovery and falling oil prices may have prompted the decision to maintain the current interest rate level. The Bank has held interest rates at 0.5 per cent for almost six years, introducing the record low figures in March 2009.

There had been warnings throughout 2014 that a rise in interest rates may not be far away. In October, there was a split decision from the members of the Bank's Monetary Policy Committee (MPC). Ian McCafferty and Martin Weale voted in favour of a 0.25 per cent increase to 0.75 per cent but were subsequently outvoted. It represented the first split decision since 2011.

Bank of England governor Mark Carney had also hinted that there could be a small change towards the end of 2014 or into early 2015, however the Bank has so far resisted introducing a hike. Analysts have previously predicted that interest rates could change in the build-up to the general election in May.

Alongside keeping interest rates at a record low, the Bank also confirmed that it would be keeping its bond-buying stimulus programme unchanged at £375 billion. UK inflation dropped to a 12-year low of one per cent in November and is expected to fall further in the coming months while oil prices have hit historic lows.

These factors have impacted on the UK's economic recovery programme which was much slower during 2014 than previously thought. GDP in the third quarter was 2.6 per cent better than in 2013 but was down from the three per cent from earlier estimates.

In a research note, economists at Capital Economics said: "With the recovery showing signs of frailty and the chances of deflation growing, the MPC is under little immediate pressure to raise interest rates."

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