No change to interest rates

Posted on July 7th, 2011 | Categories - Financial News

As predicted the Bank of England’s Monetary Policy Committee (MPC) has left interest rates on hold for the 28th consecutive month.

Despite inflation remaining above the Bank’s target experts had predicted that in light of weak economic data and a patchy recovery the nine strong MPC would leave interest rates at 0.5%.

Inflation is currently 4.5%, well above the 2% target, but the Bank appears torn between controlling inflation, which is having a significant impact on consumers and raising interest rates which could potentially damage the fragile recovery. At the moment the MPC appears to believe higher inflation is the lesser of the two evils.

Savers

However, the minutes of previous meetings suggest that some members of the MPC would like to see rates rise now.

Savers would also like to see interest rates rise as they are caught in the perfect storm of poor returns and high inflation. The group, Save our Savers, believes that as much as £50 billion has been wiped off the effective value of people’s savings over the past year through a combination of low interest rates and rising inflation.

Business

Some business groups take a different view and believe that an increase in interest rates would harm UK businesses,  The chief economist of the BritishDavid Kern Chambers of Commerce, David Kern (right), backed the decision not to change rates.

“Tightening policy in reaction to higher utility prices and internationally generated inflation would be a major mistake,” he said.

“Premature rate increases, at a time when the government is tightening fiscal policy through its deficit-cutting programme, could damage jobs and growth and should be avoided.”