UK interest rates remain at 0.5%

Posted on June 10th, 2011 | Categories - Financial News, Savings

For the 27th month in a row the Bank of England’s Monetary Policy Committee (MPC) has voted to keep interest rates on hold at 0.5%.

In addition no further quantitative easing measures were announced.

Despite fears over inflation, which at 4.5% remains well above the Bank’s target of 2%, the decision to keep rates on hold will come as little surprise, although a rise is expected at some point.

James Knightley economist at ING said believes that the UK’s poor economic data has led some to “push back expectations for the timing of the first UK rate hike to March next year”.

“However, with inflation likely to move above 5% in the next three to four months on the back of rising utility bills and food prices and with employment and employment intentions surveys remaining firm, we feel that the balance of probabilities favours an earlier move,” he said.

The MPC seemingly face a choice between leaving rates on hold with higher inflation the result and potentially affecting the economic recovery by increasing rates.

Last month three of the nine string committee voted for a rate rise. However, one of these members, Andrew Sentance, has since stepped down and been replaced by Ben Broadbent. Until the minutes of the latest meeting are released it will not be know how Mr Broadbent voted.

Europe

Over in Europe Jean-Claude Trichet, president of the European Central Bank indicated rates might rise next month.

Although the ECB (European Central Bank) kept rates on hold yesterday at 1.25% Mr Trichet said that the bank would maintain “strong vigilance” on inflation, he continued, “I would say that it means that we are in a mode where there might be in the next meeting an increase of rates”

Savers & Borrowers

The news that bank base rate will remain at 0.5% will be greeted by sorrow and joy in equal measure by savers and borrowers.

Whilst those with variable rate mortgages will continue to enjoy this prolonged period of low interest rates people with savings and Cash ISAs (Individual Savings Accounts) have to put up with returns lower than inflation, which over time will erode the value of their savings.