Bank of England holds rates at 0.5% for 37th consecutive month

In an unsurprising decision the Bank of England’s Monetary Policy Committee (MPC) has left interest rates on hold at 0.5%.

It is over three years since the Bank of England last changed interest rates and there seems no sign of an rate rise anytime soon.

The Bank also announced no additional Quantitative Easing (QE) measures. The existing program stands at £325 billion and the expectations prior to today’s announcement that this would stay unchanged.

Whether we will see more QE in the months to come is open to debate, Ian McCafferty, Chief Economic Adviser to the CBI said: “It’s a difficult judgement call, but on balance we’re not expecting a further extension next month. Recent economic data has been more encouraging, and with oil prices high, there’s now less certainty around how far and how fast inflation will fall.”

Inflation falling

With inflation falling back towards the Bank’s 2% target there seems to be less pressure to raise interest rates.

The economy is still weak and it is clear the Bank want to keep interest rates as low as possible for as long as possible to help the recovery.

However the Bank said last month that high oil prices could cause the weak recovery to slow, whilst also pushing up inflation. This would leave the Bank in the same position it was in for much of 2011, high inflation, yet not wanting to increase interest rates for fear of damaging the fragile economy still further.

Savers and borrowers

Savers responded with the usual dismay to the now ritual announcement that they will get no relief from low interest rates.

For everyone except non tax payers and Cash ISA investors it is still hard to find the best savings interest rates to beat inflation. For a basic rate taxpayer to get a ‘real’, above inflation, return, savings have to be tied up for four or five years, something most savers are reluctant to do in the hope that interest rates will rise at some point in the future.

Borrowers with tracker mortgages linked to the Bank of England base rate will of course be pleased by today’s announcement, although those people with mortgages linked to their lender’s Standard Variable Rate (SVR) will probably be more nervous about the glut of lenders increasing their SVR and their monthly mortgage payments.