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UK interest rates maintained at record low of 0.5%

The Bank of England has kept UK interest rates on hold at a record low of 0.5% for the 16th consecutive month.
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UK interest rates maintained at record low of 0.5%


The Bank of England has kept UK interest rates on hold at a record low of 0.5% for the 16th consecutive month.

The Bank's Monetary Policy Committee (MPC) also decided not to inject any more money into the economy under its policy of quantitative easing (QE).

The decision had been expected but calls have been growing for an increase in rates to curb inflation.

In June, Andrew Sentance voted to raise rates to 0.75%, the first MPC member to call for a rise since August 2008.

Inflation concerns

Last month, Mr Sentance had argued that a rise was needed to bring down inflation.

The Consumer Prices Index (CPI) hit a 17-month high of 3.7% in April. It fell back to 3.4% in May but remains well above the Bank's 2% target.

The minutes of July's meeting, which will reveal how MPC members voted, will be released in two weeks' time.

The British Chambers of Commerce said it 'fully supported' the Bank's decision, while the manufacturers' organisation, the EEF, said the decision was expected and 'likely to be maintained in the short term'.

'However, the planned VAT rise will place additional pressure on already elevated inflation expectations and next month's Inflation Report will need to consider the risks of relying on spare capacity in the economy to bring down inflation and expectations,' said Lee Hopley, the EEF's chief economist.

VAT is scheduled to rise from 17.5% to 20% on 4 January, 2011.

Cost of housing

Ray Boulger, of mortgage brokers John Charcol, said he did not expect to see an increase in interest rates until next year and even then, expected them to 'only rise slowly'.

He added that, in terms of mortgages, 'lifetime trackers still offer better value for the time being'.

Meanwhile, separate research from the Halifax found that the cost of owning and running a home in the UK had fallen by 6% over the past two years, driven by a decline in mortgage payments.

The average mortgage rate paid by existing borrowers fell from 5.8% in April 2008 to 3.67% in April 2010, the Halifax said.

From the BBC website:
http://news.bbc.co.uk/1/hi/business/10553235.stm

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