Bank of England Keeps Rates at Record Low

No Comments » | Posted by Joseph Carr-Boyd
Aug 03 2010

The Bank of England has kept interest rates at a record low of 0.5%, underlining doubts over the UK’s economic recovery.

Interest rates reached the low back in March 2009 and have remained their ever since, being used as a tool by the then Labour government to encourage spending and ease the economic recovery in the height of the recession, but even several months after Britain officially returned to growth the rate has remained the same.

The decision is evidence that the Bank is unconvinced over the country’s economic stability, with the government currently undergoing a review of public spending.

The decision will mean that those with tracker and variable mortgages are unlikely to see their repayments increase in the short term, although savers will once again earn little on their investments.

The Bank also confirmed that it would continue to inject up to £200bn into the economy as part of its quantitative easing strategy.

BoE Governor Mervyn King also stressed the uncertainty over the world economy and a recent tightening in credit conditions before the Treasury Select Committee last week.

He warned that policymakers could not be confident the recovery would be “sustained” and added that the debate was still “about the appropriate degree of stimulus, not about applying the brakes”.

The doubts have overshadowed concerns about above-target inflation on the MPC so far.

Consumer Prices Index inflation has been above 3% throughout the year – well above the Bank’s 2% target – and the Governor has warned that next January’s VAT hike to 20% will keep the cost of living elevated throughout next year.

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