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Bank holds base rate at 0.5%

The Bank of England’s Monetary Policy Committee has held the base rate at 0.5%.

The Bank has also decided to maintain the level of quantitative easing at £200bn.

It follows news that the UK economy grew by 0.5 per cent in the first three months of 2011, after a fall of 0.5 per cent in GDP in the final quarter of last year.

A rate rise had been expected in May, but release of the positive growth figures prompted revised predictions that a rate rise was now not likely before August.

The base rate has been at the all-time low of 0.5 per cent since March 2009.

Three of the nine MPC members – Spencer Dale, Andrew Sentance and Martin Weale – have consistently pushed for a rise in the base rate.

But it is thought that with Sentance leaving the committee at the end of May, to be replaced by Goldman Sachs managing director Ben Broadbent, the majority supporting a rate rise will be harder to secure.

First Action Finance head of communications Jonathan Cornell says: “With last month’s drop in the rate of inflation albeit to a level that is twice the current target, recent negative economic data showing a slowdown in the manufacturing and construction sectors, sluggish lending data to consumers and home buyers as well as falling house prices, it was unlikely that the MPC was going to increase the base rate above its current record low.

“MPC watchers will no doubt be waiting for the next set of minutes on May 18 to scrutinise the voting pattern to see if there has been more support for an increase.”

Legal & General Mortgage Club managing director Ben Thompson says: “Bank governor Mervyn King went on record this week hinting that rising interest rates might overly stress individuals that are carrying too much debt and this was a pretty clear signal that intentions were not to increase.

“Some previous predictions pointed to this month for the first increase – our belief is the earliest possible rise will be in August, but it is likely that we won’t see a change until some time after this as the economic recovery remains very fragile in many parts. It is very telling that this exceptionally low 0.5 per cent base rate constitutes an ’emergency measure’ for the economy, and has now been in place for over two years.”


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