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MPC holds interest rates

Article By: ,  Financial Analyst
May 9, 2014 10:15 AM

The base rate of interest in the UK has been held at its current level for another month.

Despite the improving economic situation in the UK, the Bank of England's Monetary Policy Committee (MPC) revealed interest rates will remain at 0.5 per cent – a record low for the UK – again.

It was also announced by the Bank of England that its bond-buying economic stimulus programme, a scheme known as quantitative easing, will be unchanged at £375 billion.

The British Chambers of Commerce (BCC) stated that even with the economic recovery on a firmer footing, it would be "premature" for the MPC to raise rates above 0.5 per cent.

BCC chief economist David Kern said: "Businesses need clarity that encourages them to increase investment, and at the moment the MPC is delivering this.

"However its efforts are hampered by repeated calls for interest rate rises whenever a piece of positive news is published."

Rate rise

Earlier in the year, the Bank of England hinted that the MPC could increase the base rate of interest in the second quarter of next year, which would make it more than six years with the record low rate. Commentators have been split on when a rate rise could occur, but Scotiabank economist Alan Clarke recently claimed that if the economic recovery continues at its current pace then an increase could be pushed through by the MPC before the end of this year.

Martin Beck, senior economic adviser to the Ernst & Young ITEM Club, told BBC News that the continued climb of the pound, as well as various other economic factors, means that the near future of inflation ought to be "benign".

He said: "The Bank is likely to use its macro-prudential tools, possibly as soon as June's meeting of the Financial Policy Committee, before deploying the blunt instrument of an interest rate rise. Next week's Inflation Report should provide more enlightenment, pointing, in our expectation, to rates remaining very low for some time yet."

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