Member Article

Interest rates kept at record low

UK interest rates have been kept at the record low of 0.5% for the 26th consecutive month by the Bank of England’s Monetary Policy Committee.

Data this week pointed to a slowdown in growth in manufacturing, construction and services, which economists reportedly took as a sign that the Bank would not change rates with the recovery still weak.

This is despite the fact that inflation is currently at 4%, double the Bank’s target rate.

The MPC did not reveal any new quantitative easing measures either.

Sarah Green, Regional Director, CBI North East, said:“Given the recent mixed signals about the current strength of the economy, it is not surprising that MPC members have decided to keep interest rates on hold again.

“While the recovery continues to make progress, recent economic data show that it is very patchy across sectors, and some parts of the economy remain fragile. “

The Bank has faced a difficult choice - either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation.

Raising rates takes demand out of the economy and slows down inflation.

But it also increases the cost of borrowing, and there are concerns this may tip the UK back into recession.

The economy shrank by 0.5% at the end of last year, but returned to growth in the first three months of 2011, expanding by 0.5%.

She added: “Pipeline inflationary pressures have intensified, with our economic surveys showing rapid cost inflation from increased energy and commodity prices.

“Our view remains that the Bank is likely to move away from the emergency 0.5% rate later this year.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .