Interest rate held
The Bank of England has voted to hold the interest rate at 0.5%.
The base rate has been at this all-time low since March, having first been cut last October.
The Bank of England has also announced that it will not be injecting any more money into the economy this year as part of its radical quantitative easing programme.
Last month, the central bank's Monetary Policy Committee (MPC) announced an extension to its plans to help lift the UK out of recession, increasing the amount of new money created from £175 billion to £200 billion.
The Bank of England has not ruled out further extension of this programme; last month’s minutes indicate that at least one member of the MPC favoured a further £40 billion increase.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.