Interest rate held at 0.5%

9 April 2009

The Bank of England has voted to hold the base rate at 0.5% following six months of cuts.

The move was largely anticipated by economists and market commentators. For one, the base rate cannot turn negative, leaving the central bank's Monetary Policy Committee (MPC) with little room for manoeuvre this month.

At the same time, the latest inflation figures revealed that the official cost of living, the Consumer Prices Index, rose slightly last month. Economists also believe that measures such as quantitative easing and the 2p fuel duty rise could push inflation back up.

If inflation does rise, then the Bank of England might have to raise interest rates sooner than , in order to bring it down to within 100 basis points of its 2% target.

James Caldwell, director of, believes the base rate will not fall any further now. However, he rules out a rise, instead predicting that it will remain stable at 0.5% for some time yet.

"It is unlikely that the base rate will creep back up any time soon, as the effects of quantitative easing have yet to be seen in the economy, along with other government initiatives," Caldwell explains.

It is likely the MPC will wait to see the impact of quantitative easing before it makes any changes to the base rate. Alongside announcing the base rate freeze, the central bank also voted to continue its programme of quantitative easing, saying it had so far injected £26.4 billion into the economy by buying assets such as government and corporate bonds.

A further £50 billion is due to be put into Britain’s economy. The Bank of England said this would take two months.

Adrian Coles, director general of the Building Society Association, says: “Leaving base rate on hold allows the impact on the wider economy of the recent rate cuts and the decision to start quantitative easing to be assessed. It will take some time before the effectiveness of these policies becomes more clear.”


Add new comment