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Interest Rates Remain on Hold

Written By On 09/04/2013

As anticipated last Thursday the Bank of England left interest rates unchanged at 0.5%, regardless of the nine member committee being split in recent months. They have now remained at this level for over four years since 5th March 2009. This comes after stronger economic figures than expected were announced days earlier giving reason for optimism in preventing a triple dip recession by a very fine margin.

Quantitative easing (the stock of asset purchases) stays at £375 billion amidst concerns from the MPC that expansion might weaken the pound and cause volatility. QE now remains unchanged for the ninth month in a row. This decision helped the pound to recover somewhat against the recent losses we have been seeing against the dollar and the euro.

The BOE is now predicting inflation to be above their initial 2% target for at least three years which will put extra strain on families' incomes, but is optimistic it will drop below thereafter.

However, if inflation continues to rise, it could have an adverse effect on financial institutions needing to increase their loan rates. Extra inflation will cause greater overheads for lenders which may lead to higher interest rates on their loans.

Governor of the Bank of Canada Mark Carney arrives in July to succeed Sir Mervyn King and Chancellor George Osborne announced in the Budget that he will be given new measures and more control. Economic experts are expecting the Monetary Policy Committee will be forced to change things to prevent our economy from remaining stagnant after his arrival.

Barry Naisbitt, Chief Economist at Santander stated

Although the MPC did not vote to extend QE today, it is clearly possibly that more QE could be announced in the coming months to boost economic activity.

Money markets are now predicting base rates to stay at 0.5% for at least five years with money experts expecting another cash injection to stimulate the economy.