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
ebooksA special investigation by Andy McSmith
Life and Style
Powdered colors are displayed for sale at a market ahead of the Holi festival in Bhopal, India
techHere's what you need to know about the riotous occasion
Arts and Entertainment
Larry David and Rosie Perez in ‘Fish in the Dark’
theatreReview: Had Fish in the Dark been penned by a civilian it would have barely got a reading, let alone £10m advance sales
Details of the self-cleaning coating were published last night in the journal Science
Approved Food sell products past their sell-by dates at discounted prices
Life-changing: Simone de Beauvoir in 1947, two years before she wrote 'The Second Sex', credited as the starting point of second wave feminism
peopleHer seminal feminist polemic, The Second Sex, has been published in short-form to mark International Women's Day
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Evening Administrator

£8 per hour: Recruitment Genius: This Pension Specialist was established early...

Guru Careers: Executive Assistant / PA

£30 - 35k + Bonus & Benefits: Guru Careers: We are seeking an Executive Assist...

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable