Bank of England keeps rates on hold at 0.5%

 

The Bank of England has kept rates on hold at 0.5 per cent, marking the fifth anniversary of ultra-loose monetary policy.

The five-year anniversary of the monetary policy committee's (MPC) decision to slash rates to a historic low comes amid a protest outside the Bank of England by campaign group Save Our Savers at the impact the ultra-low rates have had on savings pots.

Returns on savings have been slashed, costing depositors of UK banks and building societies £326.3 billion over the past five years, according to the group - although many mortgage borrowers have found themselves hundreds or even thousands of pounds better off than they might otherwise have been.

But the latest decision follows a flurry of recent comments from members of the MPC signalling that rates may rise next year as the economic recovery picks up pace.

It is also the first decision since the Bank abandoned its "forward guidance" pledge linking the cost of borrowing to unemployment figures.

The new version - dubbed "fuzzy guidance" - will see its decisions on interest rates instead based on how quickly the economy uses up its spare capacity.

The Bank said then that it would give no timing on when interest rates would rise, although market expectations are for this to happen in the second quarter of 2015 - keeping the Bank on track to leave inflation close to 2 per cent.

It has also stressed that when rates rise, the increase will be gradual.

Howard Archer, chief economist at IHS Global Insight, said: "The Bank of England clearly wants to nurture recovery and not to risk choking it off by raising interest rates too early or too fast."

He is predicting that rates will reach 1 per cent by the end of 2015 and 2 per cent by the end of 2016.

Policymakers have repeatedly stressed that while the recovery is moving in the right direction, they want to see the overall economy become more balanced.

There was some encouraging news last week when a breakdown of gross domestic product for the fourth quarter of 2013 revealed a surge in business investment, suggesting the economy is becoming less reliant on consumer spending.

The data from the Office for National Statistics showed that business investment rose by 2.4 per cent quarter on quarter in the final three months of 2013 while upward revisions to previous estimates meant it had also increased for four quarters in a row for the first time since 2007.

The figures were released alongside the second estimate of gross domestic product (GDP) for the fourth quarter of 2013, confirming that growth remained unchanged on last month's projection at 0.7 per cent.

This marked a slight dip on the 0.8 per cent seen in the third quarter.

Economic surveys have also signalled a resilient start to 2014 despite the extreme wet weather, with closely-watched Markit/CIPS purchasing managers' index readings over the past week showing firm growth in activity across the services, manufacturing and construction sectors in February.

The Bank first slashed rates to 0.5 per cent in March 2009 to combat a deep recession triggered by the credit crunch and subsequent global financial crisis.

It launched its £375 billion quantitative easing programme to pump cash into the economy at the same time.

While the economy is now in recovery, output remains 1.4 per cent lower than its pre-recession peak following a long period of stagnation.

But the Bank is expecting sharp growth this year, upping its forecast to 3.4 per cent last month from 2.8 per cent.

With inflation having now fallen below the 2 per cent target for the first time in more than four years, the Bank has been given breathing space to keep rates lower for longer to help ensure the recovery remains on track.

James Knightley, economist at ING Bank, said: "It is clear that the Bank wants to see monetary policy stay as loose as possible for as long as possible to ensure the economic recovery is sustainable.

"However, the strength of the growth story, coupled with the robustness of the labour market, means that the Bank is likely fighting a losing battle in convincing financial markets that rate hikes are a distant prospect."

PA

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
News
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'