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Has the base rate rise gone on the backburner?

Has the base rate rise gone on the backburner?

Category: Economy

Updated: 27/04/2011
First Published: 27/04/2011

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 It is now over 6 months old so the content may be out of date.

A rise in the base rate of interest still seems some months away after growth in the economy climbed only slightly higher in the first three months of the year.

The first estimate by the Office for National Statistics suggests the economy grew by just 0.5% in the first quarter of 2011.

Although it means the economy has recovered the ground it lost in contracting 0.5% during the last three months of 2010, the fact that it has done nothing more suggests the recovery remains less than convincing.

The Bank of England, which sets the base rate of interest, has one eye on keeping inflation under control, and has recently been under pressure to raise rates in order to lower inflation from its current level of 4%. However, the Bank's other eye will be on making sure any economic upturn is not derailed. With growth being so fragile, it seems unlikely a rise in rates will be approved any time soon. While mortgage borrowers will have their fingers crossed that interest rates remain low for some time to come, savers would welcome with open arms any rise in rates.

Nicholas Leeming, director at Zoopla.co.uk, said the priority for the Government had been to stop the downturn in the economy, which it had achieved, but that the next goal has to be increasing the speed at which the recovery is occurring.

"The Bank of England will have to time the interest rate rise very carefully so not to destabilise growth," he added.

"The next set of inflation figures will be crucial: if they fall further then the Bank will be reluctant to raise rates until much later this year, but a rise in inflation will put immense pressure on the remaining doves in the Monetary Policy Committee to change their approach."

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