Bank holds interest rate at 0.5 per cent


The Bank of England resisted further emergency action today despite fears that the economy will go into reverse by the end of the year.

The Bank's Monetary Policy Committee (MPC) kept interest rates at their record lows of 0.5% and maintained its quantitative easing programme at £275 billion after October's shock increase.

The MPC pumped an extra £75 billion into the economy last month amid signs that the recovery was faltering and while the picture in the UK and eurozone has worsened, economists do not expect further action until early next year.

The Bank unanimously voted for the QE boost amid fears that growth in the UK will grind to a halt by the end of the year, while Bank governor Sir Mervyn King warned that the UK could be facing "the most serious financial crisis" it has ever seen.

Today's decision came as the European Commission, the executive arm of the European Union, slashed its growth forecast for the UK this year to 0.7% from 1.1% but said there were better prospects for exports.

The UK's gross domestic product (GDP) in the third quarter grew at a better-than-expected 0.5%, but economists have warned that the figure overstated the underlying health of the economy.

Howard Archer, chief UK and European economist at IHS Global Insight, said he expects the Bank to pump a further £50 billion into the economy in the first quarter of 2012.

He said: "We currently expect the economy to be stagnant over the fourth quarter of 2011 and the first quarter of 2012 before returning to gradual growth, but it is very possible that contraction will occur, especially if there is no easing in the eurozone's sovereign debt problems."

The Bank will publish its quarterly inflation report next week, which presents an assessment of inflation and growth prospects.

Vicky Redwood, chief UK economist at Capital Economics, expects the MPC to revise down both its growth and inflation forecasts "sharply" and "lay the foundations" for further QE.

But she added: "With the effectiveness of QE questionable, the MPC is also likely to have to think of different ways of supporting the economy."

David Kern, chief economist at the British Chambers of Commerce (BCC), said higher QE on its own was not enough.

He said: "Without effective measures to improve the flow of credit to businesses, particularly smaller firms, the increase in QE will not achieve its full potential in supporting growth."

Purchasing Managers Index data for October on the powerhouse services sector and manufacturing industry, released shortly after, both pointed towards the UK economy contracting in the final three months of the year.

Meanwhile, the crisis in the eurozone - which the Bank cited as one of the key threats to the UK recovery - continues to escalate as EU leaders fail to reach an accord on solving the region's problems.

Italy has moved to the heart of the crisis as its borrowing costs soared into bailout territory yesterday amid increased uncertainty over its political future.

Elsewhere, trade figures for September showed the debt crisis had already started to have an impact on the UK economy as exports to the EU tumbled.

Holding interest rates will be welcomed by borrowers, with the price of a fixed-rate mortgage now at an all-time low as lenders factor in a longer spell with the Bank's base rate at rock bottom.

Elsewhere, lenders scaled back their forecast for home repossessions this year after figures for the latest quarter rose by less than expected.

Council of Mortgage Lenders director general Paul Smee said the fall in the number of mortgages in arrears and the stable picture on repossessions were testament to the "beneficial effects of low interest rates".

But the extended period of lower lending costs spells more misery for pensioners and savers, who will continue to suffer low returns on their money at a time when high inflation is eroding the value of their deposits.


Denny Miller in 1959 remake of Tarzan, the Ape Man
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
Arts and Entertainment
newsIn short, yes
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
Groundskeeper Willie has backed Scottish independence in a new video
Arts and Entertainment
The Doctor poses the question of whether we are every truly alone in 'Listen'
tvReview: Possibly Steven Moffat's most terrifying episode to date
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Cara Delevigne at the TopShop Unique show during London Fashion Week
The life-sized tribute to Amy Winehouse was designed by Scott Eaton and was erected at the Stables Market in Camden
peopleBut quite what the singer would have made of her new statue...
England's Andy Sullivan poses with his trophy and an astronaut after winning a trip to space
peopleThe actress has agreed to host the Met Gala Ball - but not until 2015
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week
The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

The fall of Rome?

Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
Glasgow girl made good

Glasgow girl made good

Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
Sequins ahoy as Strictly Come Dancing takes to the floor once more

Sequins ahoy as Strictly takes to the floor once more

Judy Murray, Frankie Bridge and co paired with dance partners
Wearable trainers and other sporty looks

Wearable trainers and other sporty looks

Alexander Wang pumps it up at New York Fashion Week
The landscape of my imagination

The landscape of my imagination

Author Kate Mosse on the place that taught her to tell stories