Interest rates on hold for 18th month

The Bank of England maintained its emergency support for the economy today by keeping interest rates at 0.5% for the 18th month in a row.





Policymakers also continued with the Bank's £200 billion quantitative easing (QE) programme amid uncertainty over the path of the UK's recovery.



While the UK economy rose by a far better-than-expected 1.2% in the second quarter, recent data has pointed to sharply slower growth since then.



Fears that UK exporters will struggle to fill the gap left by weaker Government and consumer spending were highlighted earlier in the day when figures showed a record deficit in the trade of goods during July.



Recent surveys from the manufacturing and services sectors have also suggested the rally may be fading as firms begin to see much slower demand.



This week's demise of social housing giant Connaught - the first high-profile casualty of the austerity drive - added to fears over the impact on the recovery.



The Bank's nine-strong Monetary Policy Committee (MPC) has left rates unchanged at their historic lows since March 2009.



Rates have been on hold for the longest spell since the Bank was given responsibility for setting monetary policy in 1997.



The previous record during the MPC's time was when rates were on hold at 4% for 15 months, between November 2001 and February 2003.



MPC members are torn between the pressures of stubbornly high inflation and the threat of a double-dip recession.



But a split is emerging among members, with above-target inflation leading Andrew Sentance to vote for a quarter-point rate increase in the previous three months.



Consumer Prices Index (CPI) inflation was 3.1% in July and warnings suggest cost pressures will worsen, with food prices expected to increase over the coming months.



Experts at Barclays Capital believe CPI edged up again in August, to 3.2%, which could leave the MPC facing a further dilemma.



However, the majority so far opted to prioritise the need to support the economy over efforts to rein in inflation and experts believe this is likely to remain the case for at least the rest of the year.













The British Chambers of Commerce (BCC) welcomed today's decision and said a worsening outlook ahead of the looming spending cuts should mean rates stay on hold well into 2011.



David Kern, chief economist at the BCC, said: "The Government's tough deficit-reduction measures, although necessary to repair the public finances, will increase the threat of an economic setback.



"Since sustaining the recovery must remain the priority, it is absolutely vital that the MPC maintains the current low level of interest rates until the middle of 2011 at the earliest."



Experts believe the most likely next move will be to offer more support to the economy through an increase in QE.



The latest report from the Organisation for Economic Co-operation and Development (OECD) today warned that central banks across the G7 economies may need to increase support measures.



It also said severe austerity action may need to be put on hold as the recovery slows more sharply than expected, although its forecasts for the UK are among the strongest of all the seven major economies.



Philip Shaw, economist at Investec Bank, said: "The economy does not yet have the ability to stand on its own two feet, particularly with the uncertainties over the effects of the forthcoming fiscal squeeze, and accordingly the first rise in rates looks some way off."



He added that further QE could be on the cards, although the MPC is not expected to act until it gets sight of the Bank's next quarterly inflation forecast in November.



"However, barring the economy posting signs of a sudden lurch downwards, our central case is still that the committee will elect not to restart QE purchases and that the first rate rise will occur in the second quarter of next year," said Mr Shaw.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea