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Bank rate may stay at 0.5% until 2014

John Charcol senior technical manager Ray Boulger says bank rate could remain at 0.5 per cent until 2014, following the Bank of England’s decision to hold it at that for the 32nd consecutive month.

Last week, the monetary pol- icy committee held bank rate at 0.5 per cent and quantitative easing at £275bn. The last rate change was on March 5, 2009, when it was reduced from 1 per cent to 0.5 per cent. On the same day, the Bank of England initiated a £75bn QE programme.

The QE programme was increased to £200bn in November 2009 and then rose by £75bn to £275bn last month. Minutes from the October meeting of the MPC show all members voted for the QE increase.

Giving evidence to the Treasury select committee last month, BoE governor Mervyn King said the decision to increase QE will not guarantee an increase in lending by commercial banks.

Boulger says: “The banking crisis will get worse as the euro contagion spreads and this will inevitably have a significant impact on non-eurozone banks such as those in the UK. One likely impact on our interest rates is that bank rate will remain at 0.5 per cent even longer than looked likely as recently as a month ago. It is no longer unreasonable to think of bank rate remaining at 0.5 per cent until 2014.”

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  1. And no measures will be taken to bring inflation down below 5% p.a. because inflation is a handy way to reduce the real value of government debt.

    Also, raising interest rates would risk meltdown in the mortgage market due to homeowners already pretty close to the brink as far as their monthly payments are concerned defaulting in vast numbers.

    That’s how I see it, anyway.

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