Interest rates on hold for 22nd straight month

13 January 2011

The Bank of England confirmed expectations today as it announced the base rate would stay the same at 0.5% and no changes would be made to quantitative easing.
For the 22nd consecutive month, Mervyn King's MPC deferred making a decision that might hinder the strength of the recovery, but analysts think the time to act is edging nearer.
"It will be interesting to see whether some members changed into Andrew Sentence's camp, who has been voting in favour of a rate hike for some time," said analysts at Commerzbank. But the breakdown of votes will not be available until the meeting minutes are released on 26 January.
Inflationary concerns in the UK are currently rising and there is mounting pressure on the Bank of England to confront this, according to Howard Archer, chief European and UK economist for IHS Global Insight.
However, the fiscal squeeze – most recently demonstrated by the hike in VAT to 20% – was probably fresh in the committee's minds when it chose not to shake up policy.
"We suspect most MPC members will have favoured keeping monetary policy unchanged while they look to see how much the economy is being affected by the fiscal squeeze currently kicking in. The problem facing the MPC is that economic data for late 2010 and early 2011 are likely to be distorted by December's severe weather and some catch-up effect on lost business," added Archer.

This article was written for Interactive Investor

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