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Bank holds rate at 0.5% and increases quantitative easing by £50bn

The Bank of England’s Monetary Policy Committee has frozen the base rate at 0.5 per cent and boosted its quantitative easing programme by £50bn to £125bn.

The MPC held the rate at 0.5 per cent for the second consecutive month after last cutting the rate in March to its current historic low.

The Bank of England says: “The world economy remains in deep recession. Output has continued to contract and international trade has fallen precipitously.

“The global banking and financial system remains fragile despite further significant intervention by the authorities.

“In the United Kingdom, gross domestic product fell sharply in the first quarter of 2009. But surveys at home and abroad show promising signs that the pace of decline has begun to moderate.”

The Bank noted that consumer price index inflation is well above its 2 per cent target at the moment at 2.9 per cent but warned it would drop below this later in the year and so the MPC decided that to bring it back to target over the medium term the base rate should remain at 0.5 per cent.

Buy-to-let mortgage brokerage Mortgages for Business says it would not be surprising if base rate remains at 0.5 per cent for the next year.

Head of sales Steve Olejnik says: “Time will tell whether the Bank’s quantitative easing programme will have the desired effect of boosting the supply of funds in the market but, dare I say it, there appears to be some stability returning to the market. It would not surprise me to see base rate remaining at 0.5% for the next 12 months.”

BSA director general Adrian Coles says: “The Bank’s interest rate decision is no surprise. While hard pressed savers should see interest rates maintained, this decision does nothing to help lenders to attract new deposits that could be used to fund mortgage lending.

“With the general economic outlook remaining bleak, we hope that the expansion of the quantitative easing programme will help to lessen the severity of the downturn.”

Property Portfolio Rescue director Nick Hopkinson says: “Interest rates are unlikely to move from 0.5 per cent for the foreseeable future, but with lenders remaining cautious, this will have little impact on those looking to secure a mortgage or raise finance.

“Consumers shouldn’t be fooled by the ad hoc good news stories, which have been emerging over recent weeks. We are not nearing the bottom of the market – house prices still have a long way to fall, unemployment figures continue to rise and repossessions have almost doubled over the last year. Those delaying their house sale in anticipation of a change in fortunes and imminent price rises will be bitterly disappointed.”


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