Bank of England keeps interest rates on hold

The bank of England's Monetary Policy Committee (MPC) kept interest rates unchanged and its £200bn quantitative easing programme on hold yesterday, as two key surveys provided mixed messages on the health of the wider economy.

Underlying UK retail sales on stores open more than one year tumbled by 2.3 per cent in April, as shoppers remained "nervous", although the data was hit by the first two days of the Easter Bank Holiday falling in the March reporting period, the British Retail Consortium (BRC) will reveal today. On a brighter note, an increased net balance of 17 per cent of surveyors said that house prices rose in April, according to the Royal Institution of Chartered Surveyors (Rics).

Given the fragile recovery of the UK economy, the political uncertainty following the election and risk of the Greek crisis spreading to other debt-laden countries in Europe, the MPC's decision was widely anticipated.

Howard Archer, the chief European economist at IHS Global Insight, said: "For now at least, we are retaining our view that the Bank of England will keep interest rates down at 0.5 per cent for many more months to come, and very possibly into 2011."

IHS Global Insight said it expects the MPC to keep quantitative easing, the so-called "printing money" policy designed to stimulate the economy, pegged at £200bn for the rest of 2010 before it starts to "gradually reverse" the process in the first half of 2011.

In the retail sector, further evidence emerged of consumer caution over spending on the high street. However, store group's sales in April were dampened by only including the final two days of the Easter Bank Holiday weekend, in contrast to the full four-day period in April 2009. As a result, total retail sales fell by 0.2 per cent last month, compared with a 6.3 per cent spike in April 2009.

While sales growth at both food and non-food chains slipped back, the worst performers included clothing, homeware, furniture, health and beauty, and electricals chains.

"There's no question customers are more willing to spend than 12 months ago but still are nervous," said Mr Robertson. "People need to know how a new government's moves to tackle the deficit will affect their incomes and jobs. Even if the measures are tough, knowing what they are could be better than the current uncertainty."

In the housing market, Rics said the seasonally adjusted balance of surveyors citing price rises rose to 17 per cent last month, up from 9 per cent in March. However, there were distinct regional differences with London and the South-east remaining the "clear outperformers" for house prices.