Interest rates on hold for another month

Posted on May 10th, 2013 | Categories - News

London_istockIn a move which will surprise no one, the Bank of England has announced interest rates will remain on hold for another month.

The Bank’s Monetary Policy Committee (MPC) met this week and voted to leave base rate at 0.5% and not to extend the existing £375 billion program of Quantitative Easing (QE).

Most economic experts believe the committee is in a ‘holding pattern’, until Mark Carney takes over as governor from Mervyn King in the summer. The committee were possibly also influenced by economic data, which showed signs of recovery in the UK economy. Over the past few weeks figures have shown the UK economy grew by 0.3% in the first quarter, avoiding a triple dip recession, whilst both industrial and manufacturing output rose more quickly than expected.

Despite the stronger than expected economic data, most economists believe QE will be extended when the now governor takes the helm in a few weeks time. Far from everyone is in agreement though, with David Kern, Chief Economist at the British Chambers of Commerce, warning: “Following the changes in the MPC’s remit announced in the Budget, it is worrying that the demand for more QE could be part of a wider policy shift where higher inflation and a weaker pound are tolerable.”

Kearn continued: “Instead, incoming governor Mark Carney should make better use of the existing QE programme, and use measures other than QE alone to support a revival of business lending.”

Experts also point out that the Funding for Lending Scheme (FLS) has recently been extended and will also provide a boost to the economy.

Tough on savers

Although the latest decision to keep interest rates at 0.5% comes as no surprise, it will disappoint savers, who are struggling to find a real return on their savings accounts.

Savers are being attacked by a ‘perfect storm’ of rising inflation and falling savings interest rates. It is currently impossible for taxpayers to find an account which pays an interest rate above inflation, guaranteeing the value of their capital is eroded.

With a new governor, who has a wider mandate from the government, a recent extension to the Funding for Lending Scheme and predictions inflation is set to rise further; the plight of savers is not set to improve any time soon.