Interest rates stay on hold despite inflation pressures
The Bank of England has kept interest rates on hold at 0.5 per cent. The decision to maintain record low rates was widely expected after a set of gloomy economic indicators.
There had been rumours May would be the month that policymakers would increase interest rates, meeting due to fears over mounting inflationary pressures.
But the Bank of England’s monetary policy committee (MPC) kept rates at 0.5 per cent after lacklustre figures which showed growth in the UK had been flat for six months.
In addition, the rate of inflation unexpectedly slowed in April to 4 per cent which, while still double the Government’s target, eased pressure on the MPC to act.
Elsewhere, a survey has revealed a further slowdown in growth in the powerhouse services sector, while a leading thinktank, the National Institute of Economic and Social Research (Niesr), warned that growth would continue to be weak.
Economists believe the latest set of gross domestic product (GDP) figures last week – which showed a 0.5 per cent rise between January and March – killed off any chance of an interest rate hike this month.
Our view remains that the Bank is likely to move away from the emergency 0.5 per cent rate later this year. Ian McCafferty, CBI chief economic adviser
The Bank also left the scale of its quantitative easing programme to boost the money supply unchanged at £200bn.
Ian McCafferty, the CBI’s chief economic adviser, said the MPC’s decision to hold rates was “not surprising”.
He said: “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.
“However, 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 per cent rate later this year.”
