Businesses hail Bank's decision to keep interest rate at 0.5%

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The Independent Online

The Bank of England kept interest rates at their historic low of 0.5 per cent yesterday, saying it expected to complete its £175bn programme of quantitative easing, extended by £50bn a few weeks ago, over the next two months.

The announcement was widely expected, and the Monetary Policy Committee's decision was given a cautious welcome by business. Ian McCafferty, the chief economic adviser at the CBI, said: "It is not surprising that the Bank has chosen to keep things as they are, given the big decision on quantitative easing taken last month."

Graeme Leach, the chief economist at the Institute of Directors, added: "In the absence of clear evidence of recovery the MPC is absolutely right to keep interest rates unchanged."

Economists generally expect the Bank to keep rates at 0.5 per cent well into next year, until the economy has developed enough momentum of its own to secure recovery. Only then, they say, will the Bank feel confident enough to implement an "exit strategy" or stop quantitative easing and raise rates. But some think still more quantitative easing could come soon.

At last month's meeting of the MPC, the Governor, Mervyn King, was outvoted when he proposed a £75bn rise rather than the £50bn increase now being implemented, itself a move that shocked the City.

David Blanchflower, a former member of the MPC, predicts that Mr King and the Bank will have to pump even more money into the economy to help lift it out of recession.

Hetal Mehta, an economic adviser to the Ernst & Young Item Club, said: "We do not expect the Bank to make any further moves until November, when the MPC has had the opportunity to assess the situation in more detail through the Inflation Report."

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