Bank of England keeps interest rates at record low

The Bank of England put protecting a fragile UK recovery ahead of inflation fears today as it left interest rates on hold at a record low of 0.5%.

Rate-setters on the Monetary Policy Committee (MPC) also left their £200bn (€239.3bn) programme to pump money into the economy unchanged following their two-day meeting.

The decision comes after the first policy split on the MPC since November was seen last month when Andrew Sentance voted to hike rates to tackle inflation, currently above the Bank's 2% target at 3.4%.

But fellow committee members have warned it is too early to act, with the recovery still uncertain and Chancellor George Osborne's savage Budget squeeze to slash the deficit likely to slow the economy.

Mr Sentance, whose vote last month was the first call for a rate hike in nearly two years, believes there are enough recovery signs in the economy to absorb a rise.

But recent survey data have flagged up slowing growth among manufacturers and services firms, casting doubt over the sustainability of the recovery.

Fellow MPC member Adam Posen has said he was kept awake at night by the risks of slashing too swiftly, while committee colleague David Miles also believes it is too early to move.

The slew of disappointing economic data has not been confined to the UK, with worries over slowing growth in China adding to recent stock market tremors as well as concerns over prospects in the eurozone as nations address their own deficits.

The Bank's own credit conditions survey, meanwhile, heightened fears of a second credit crunch, with mortgage availability expected to worsen during the third quarter of the year as lenders find it harder to raise funds.

The housing market stalled last month, according to building society Nationwide - creeping just 0.1% ahead as more properties come up for sale.

Halifax's latest survey gave an even gloomier verdict for June, with a price drop of 0.6% marking the third month in a row of falling property prices.

High street retail sales could gain a temporary boost later this year as shoppers bring forward spending to beat Mr Osborne's January VAT hike to 20%, but with lingering uncertainty over house prices and employment - particularly for public sector workers - denting confidence, a consumer spending spree looks unlikely.

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