UK interest rates hold firm

UK interest rates hold firm

The Bank of England maintained its emergency support for the UK economy today by keeping interest rates at 0.5% for the 18th month in a row.

Policymakers also continued with the bank's £200bn (€242.1bn) 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 British 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.

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