Interest rate held at 0.5% for July

9 July 2009

The Bank of England has voted to hold the base rate at 0.5% again this month.

Following a series of cuts - which brought the rate down from 5% last October to an historic low of 0.5% in March this year - the central bank's Monetary Policy Committee (MPC) now has few options left open to it. It can't reduce the rate to a negative level, but is unlikely to increase it in the coming months either because of the continuing risk of inflation. 

It is not clear how long the current low level is likely to last. Some economic indicators are showing encouraging signs, but others, including unemployment and the shrinking economy, are getting worse.

The MPC may instead focus on an extension of the quantitative easing scheme introduced earlier this year. This enables the Bank to create new money and use it to stimulate the economy by buying bonds.

It is allowed to increase its planned spending - currently £125 billion - by up to £25 billion without having to consult the Treasury.

However, for July at least, the MPC has decided to maintain its planned quantitative easing measures at £125 billion.

Add new comment