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Prospect of rate rise is receding

Bank rate was held at 0.5 per cent at last week’s monetary policy committee meeting for the 28th month in a row and quantitative easing has been kept at £200bn.
The last rate change was on March 5, 2009, when it was cut from 1 per cent to 0.5 per cent.

Newton Investment Management global strategist Peter Hensman says: “Despite the persistence of the overshoot of the inflation target, the minutes of the last meeting indicated that, at the margin, the committee had become more concerned about the downside risks to growth as uncertainties continue to swirl regarding the stability of the financial system in the face of the problems in the periphery of Europe and the domestic economy deals with fiscal austerity.”

John Charcol senior technical manager Ray Boulger says: “As the markets become increasingly worried about the growing intensity of the euro crisis, caused by fundamental flaws in its concept and hence impossible to solve on a permanent basis, the likelihood of the MPC increasing bank rate any time soon diminishes.

“The question now is not whether bank rate will increase this year but whether it will increase next year.”

Minutes from the June meeting of the MPC show new member Ben Broadbent deciding against following in his predecessor’s footsteps in calling for base rate to be increased. The MPC was 7-2 in favour of keeping rates at 0.5 per cent.

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