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Unanimous MPC vote holds bank rate at 0.5%

All nine members of the Bank of England’s monetary policy committee have voted in favour of keeping the base rate at a record low of 0.5 per cent.

Prior to the August meeting, the MPC had been split 7-2 in favour of keeping interest rates at 0.5 per cent, with Spencer Dale and Martin Weale calling for a 0.25 per cent increase.

But the minutes from the August meeting show Dale and Weale have now fallen in line with the rest of the committee due to weak economic data and turmoil in the financial markets.

The base rate has now been at 0.5 per cent for 29 consecutive months.

Adam Posen is the only member of the committee to call for an increase to the quantitative easing programme by £50bn to a total of £250bn.
The most recent change to the size of the programme was an increase of £25bn, bringing the total to £200bn, in November 2009.

John Charcol senior technical manager Ray Boulger says: “All of the economic indicators both from the US and Europe on the risk of us going into a double-dip recession look much higher than even a month ago.

“I think there is very little likelihood of a base rate rise next year. It looks highly probable we will see the base rate stay at 0.5 per cent until 2013.”

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Pensions: trouble ahead?

The pace of change in the pension’s space has been little short of astonishing, and has left thousands of employers struggling to keep their pension policy compliant, and also on the right side of current best practice and governance. Many employers, and indeed many in the pensions industry itself, would like to see a period of no change during the next term of government. This would give all sides a chance to catch up and draw breath. 

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  1. The MPC is caught between a rock and a hard place. Raising interest rates is the traditional mechanism for damping down inflation but to do so now would probably cause massive problems for people whose mortgage payments are already at the limit of affordability and would have no effect on the escalating prices of energy and food. Also, it would provide the banks with an excuse to make the terms on which they’re offering loans to SME’s even tougher than they are already. Many are declined by applicants because the terms are simply so punitive. But there’s no way the government can change that without effectively dictating to banks the terms on which they must offer loans, which would amount to the government running them. Were such an idea even to be proposed, the banks would mount every legal challenge imaginable, apart from which the government doesn’t have the people capable of of determining just what terms might be fair as opposed to those which would compromise the commercial interests of the banks. The terms commonly offered for loans to SME’s nowadays are blatantly not TCF, but there’s nothing that either the government or its subsidiary the FSA can do about it.

    So the base rate has to remain at just ½% p.a. It’s a deeply unsatisfactory state of affairs but for the foreseeable future there appears to be no alternative.

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