9 Jun 2011

Bank of England keeps interest rates on hold

The Bank of England keeps interest rates on hold, with the Monetary Policy Committee voting to maintain the Bank’s base rate at 0.5 per cent for the 27th month in a row.

The Bank of England has kept interest rates on hold (Getty)

The decision provides some relief for homeowners during a week when Scottish Power announced an average hike of nearly £200 in annual power bills.

Economists have put back the likely date for the next rise in rates to November as worries about growth prospects override concerns about inflation, which hit 4.5 per cent in April.

Business leaders have welcomed the bank’s stance and warned a rate hike would throw the economic recovery off course, particularly after GDP figures for the first quarter of 2011 showed tepid growth of 0.5 per cent.

Ian McCafferty, CBI’s chief economic adviser, said the MPC was right to wait for clearer signs that growth is gathering pace before changing its stance on interest rates.

He said: “Although the recovery is expected to make further headway into the second half of the year, households continue to face particularly challenging conditions, and business confidence remains fragile.”

Read more: Household income takes biggest tumble in 30 years

The delay is bad news for savers, who will continue to suffer from low returns on their money at a time when high inflation is eroding the value of their deposits.

The squeeze on household budgets is set to get tighter as families face another round of utility bill rises.

The bank has warned inflation will rise above 5 per cent later this year and remain above the Government’s 2 per cent target throughout 2012, before falling back in 2013.

Despite this, IHS Global Insight chief UK economist Howard Archer expects the MPC to hold off lifting rates until November at the earliest.

He said: “There can be little doubt that the MPC will keep interest rates down at 0.5 per cent, given the current softness of the economy, serious concerns over the consumer, and the fact that fiscal tightening increasingly kicked in from April.”