Interest Rates 0.5%

The Bank of England Monetary Policy Committee (MPC) have frozen interest rates at a record low of 0.5% again for the 26th month.

With a reduced output in manufacturing and the construction industry, economists took this as a sign that the Bank would not increase interest rates.

The MPC did not introduce any new quantitative easing measures.

Interest Rates

The Bank has a difficult decision to make

Either keep interest rates low to try to aid the economic recovery, or increase them to try to cool inflation, which currently stands at 4.0%, double the bank’s target.

Increasing rates will take demand out of the economy and slow down inflation, which is what the Bank would like, but it also increases the cost of borrowing, and there would be concerns this may push the UK back into recession.

The economy shrank by 0.5% at the end of last year, but returned to growth in the first three months of 2011, expanding by 0.5%.

Although the Bank was expected to leave rates unchanged, some members of the committee have been pushing for an increase.

At the MPC’s April meeting, three out of the nine members voted for a rise in interest rates.

Our thoughts at park gate are that interest rates will not change before August this year, due to the economy still being very fragile.

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