Bank Base rate held at 0.5%

Posted on September 8th, 2011 | Categories - News

In an unsurprising move the Bank of England’s Monetary Policy Committee has kept interest rates on hold at 0.5%.

Interest rates have now remained unchanged since March 2009.

The MPC has also decided not to restart its quantitative easing, which has previously injected £200 billion into the UK economy.

In a move also widely expected the European Central Bank (ECB) also left interest rates on hold at 1.5%.

Poor economic data

Most economists had not expected a change in interest rates with recent data showing that the economy is still weak; the OECD (Organisation for Economic Co-operation and Development) today warned that growth in the UK, as well as in other countries, it likely to be lower than expected and that a double dip recession is still possible.

Indeed, some experts had thought that recent results were sufficiently poor for the MPC to consider restarting the quantitative easing program.

Not everyone believes things are that bad, the CBI’s, chief economic adviser, Ian McCafferty said: “Although recent data has brought further evidence of slower economic activity and business confidence has weakened, it is not clear that this requires an immediate policy reaction.”

He continued: “We hope the UK economy will be on a firmer footing by next year, when a lower inflation rate will bring some relief for households.”

Winners and losers

Interest rates being at such low levels for a prolonged period of time are having a negative impact on the UK’s savers. Figures released today show that lost £43 billion due to low interest rates; however borrowers have benefited with mortgage holders gaining £51 billion.

High levels of inflation are having a significant impact on savers, who are struggling to find a real return with very few accounts providing an after tax return sufficient to beat inflation. The problem was made worse this week with the withdrawal of NS&I’s Index Linked certificates, which provided a guaranteed return above inflation.

Simon Rose of Save Our Savers, a group set up to campaign for better rates for savers, believes that the Bank of England is not doing enough to counter inflation and is angry at the MPC’s reluctance to raise interest rates.

Rose said: “George Osborne has stressed the importance of savers to the economy in the past. Perhaps he will prove a man of his word and listen to our plea to assist savers by suspending income tax on savings interest.”

However the MPC are clearly keeping interest rates low and prioritising the needs of the wider economy ahead of those affected by high inflation and low interest rates; the fear being that if rates rise it will further damage the already fragile economy.