Interest rates remain at 0.5%
Both decisions were highly anticipated, and recent data showing a 0.5% contraction in UK growth during the last three months of 2010 made a rise even less likely.
The Monetary Policy Committee (MPC) decision to keep the rate the same for the 23rd consecutive month came despite speculation members would vote for a rise.
MPC member Dr Andrew Sentance has been arguing the need for a rate rise since June 2010 and at the last meeting in January he was not alone.
His views have been backed by Charles Bean, deputy governor of the BoE, who says the increase in the cost of fuel and food could cause inflation to rise further and argues this would need to be curbed using monetary policy.
The main issue is inflation. When interest rates rise it encourages people to save and discourages them from borrowing because they get a better rate of return of their savings and their borrowing costs more.
This has the effect of taking money out of the economy, as people spend less and reduces demand which should push down the cost of goods.
More more read: Rising inflation: What does it mean for you?
However, David Kern, chief economist at the British Chambers of Commerce, argues the economy is still too fragile to handle a rate rise.
He says while figures from the Purchasing Managers' Index showed businesses rebounded well following the disruption caused by the snow in December, the MPC should not be too hasty.
"We are concerned that recent positive figures could heighten pressure on the MPC to raise interest rates too early," he says.
"The UK recovery is still fragile and the more forceful implementation of the government’s austerity plan will inevitably have negative effects on business cash flows and consumer disposable incomes," he adds.
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.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
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.