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Base rate remains on hold

Base rate remains on hold

Category: Economy

Updated: 09/06/2011
First Published: 09/06/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

There were no surprises from the Bank of England today, after it announced that interest rates are to remain on hold at 0.5%.

Earlier this year, many experts and analysts had predicted that the Bank's Monetary Policy Committee (MPC) would implement a rise in rates in the early summer.

However, recent data has showed that the recovery in the economy is still in its infancy and very fragile, meaning a rise could stifle it.

Even the high rate of inflation has not been enough for the MPC to increase the rate, as it announced that it would remain at 0.5% at noon today.

The MPC also voted not to extend the programme of quantitative easing (QE).

David Kern, chief economist at the British Chambers of Commerce, said the decision was the right one for the economy.

"Businesses will be supportive of the MPC's decision to leave interest rates and the quantitative easing programme unchanged," he said.

"Given the fragility of the recovery, and the acute pressures facing businesses and consumers, the Committee was right to reject demands for early rate increases.

"With UK inflation more than double its two per cent target, and likely to increase further in the next few months, it's natural for the MPC to feel uneasy.

"Tightening policy in reaction to internationally generated inflation and higher utility prices would have been a big mistake. Premature rate increases, at a time when the Government is tightening fiscal policy, could seriously harm jobs and growth."

Minutes released later in the month will reveal whether any of the members of the MPC voted to increase the base rate or expand the programme of QE.

In recent months, three members of the committee have voted to increase rates, with Andrew Sentance the main protagonist, recommending a rise to 1.0%.

However, Mr Sentance's run on the MPC has come to an end.

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