All-time low interest rate continues into 12th month
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The Bank of England has decided to hold the base rate at 0.5 per cent for the 12th consecutive month and has continued to hold on any future fiscal stimulus.
Experts expected no change from the Monetary Policy Committee after it revealed inflation rose to 3.5 per cent in January while GDP only rose 0.3 per cent at the end of 2009.
But Legal & General director of mortgages Ben Thompson says inflation is still a “lurking threat”. He says: “The Bank of England expects inflation to remain high for several months but only temporarily so. There are some signs that inflationary pressure may build up over the course of this year and next year.”
The MPC has also decided to hold off on any further quantitative easing. While RBS head of group economics Stephen Boyle says “no news is good news” with regard to fiscal stimulus, the Bank has injected £200bn in the economy and many economists are as yet undecided whether it has had a tangible positive affect on the UK economy.
Charles Stanley chief economist Edward Menashy says: “As the markets witness the first anniversary of quantitative easing, the MPC can claim success in supporting higher asset prices, thus enabling companies to raise capital in the equity and fixed interest markets at more favourable terms. But loans fell by £4.3bn and the money supply rose at the slowest rate of growth in nine years in December 2009 - so in what is probably the central objective of the stimulus, the policy has yet to work.”
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Readers' comments (1)
John Whipple | 4 Mar 2010 3:39 pm
QE has underpinned and re inflated asset prices and has generated money for the mega companies and the highly leveraged take over deals we are seeing BUT it has not benefited the real economy one bit. Banks are still not lending to business, mortgage lending is well down and interest rates that ordinary people are charged for loans, credit cards and the like are excessively high - even higher than when BoE rates were at 5%.
Inflation has not gone away in fact the real rate has increased dramatically due to the high internal UK inflation and of course the devaluation by over 25% or more of sterling.
QE the low IQ policy.
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