Interest rates held at 0.5%

The Bank of England kept interest rates at their record low level today.

Borrowing costs have been held at 0.5% for more than a year as the Bank's Monetary Policy Committee (MPC) attempts to soothe the ailing economy.



The committee also opted not to alter the £200 billion it has spent so far on quantitative easing (QE) to boost the money supply.



Its decision comes in the wake of recent figures showing the UK moved out of recession faster than originally thought in the fourth quarter of 2009.



Recovery hopes were also raised this week by predictions from the Organisation for Economic Co-operation and Development (OECD) that UK output will grow at a faster pace than many other major international nations at the beginning of this year.



Strong manufacturing and services data have also added to the positive mood.



But economists believe there are still challenges ahead for the healing economy.



The MPC will also have considered the fall in February's rate of inflation to 3%, from 3.5% in January.



This has eased fears about pressure on the Bank for rate hikes as it looks to steer inflation to its 2% target.



Minutes from its last meeting showed some members were concerned that a weak pound and resurgent economy could keep inflation above target for longer.



But others were more concerned that the slack in the economy, dragging over from the recession, could see inflation sink below the 2% level.







The Bank's decision was in line with economists' expectations.

David Kern, chief economist at the British Chambers of Commerce, said it "would be wrong" to think about changing policy at the moment.



"A fragile recovery is now under way, but the upturn must be nurtured to counter risks of a relapse," he said.



"Despite the upward revision to GDP in the fourth quarter of 2009, and the prospect of positive growth in the first quarter of this year, the economy remains weak and vulnerable to a setback.



"Businesses remain under pressure and there is absolutely no room for complacency."



This is the last MPC decision before the General Election.



Philip Shaw, of Investec Securities, said the committee would hope that the result of the poll would reduce uncertainty over future fiscal policy.



"Of course, with the Conservatives advocating a speedier reduction in government borrowing than Labour, it seems logical to suppose that the committee would be inclined to start raising rates later under a Tory victory, or at least tighten at a more gradual pace," he said.



Mr Shaw predicts rates will start to rise at the end of this year, but said the cost of borrowing could remain at current levels into 2011 if there were sharp cuts in public expenditure.

Comments