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Interest Rates held at 0.5%

The Bank of England has announced that interest rates are to be held at a record low of 0.5%, and they have no plans to extend its quantitative easing programme.

Rates have remained at this level for the past three years, despite inflationary pressures. Some economists believed that there was a risk of the Government implementing another round of quantitative easing after recent figures pointing to a UK recession.

Commenting on the figures, Richard Driver analyst for Caxton FX said: “Policy bias within the MPC was certainly skewed against further QE in April but there was always the chance that several members were happy to let the last £50bn run its course, only to see pro-QE votes re-emerge in May.

“While the BoE’s QE programme may be on hold for now, as ever, the MPC minutes on 23 May will be crucial, particularly regarding whether Posen or Weale stuck to their no-change position.’

The Quarterly Inflation Report due out next week will also be very important, and is likely to indicate that price pressures are increasing the chance of UK inflation exceeding medium term targets, which was the key motivation for the MPC voting against additional Quantitative Easing.

He continued: “Nonetheless, there remains a very significant risk of further QE in the coming months, particularly if UK growth continues at the softer pace that was indicated by April’s figures.

“The extra bank holiday in the form of the Queen’s Jubilee will also weigh on the chances of UK growth bouncing back into positive territory on Q2.”

Sterling has understandably rallied on the no-QE decision, hitting fresh highs towards €1.25. The pound is likely to remain in favour at least until the MPC minutes are revealed in a fortnight.

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