Interest rates on hold at 0.5%

9 September 2010 | By Natalie Thomas

The Monetary Policy Committee has also voted to keep the level of quantitative easing unchanged.

Minutes from August’s MPC meeting show member Andrew Sentance once again voted for a 0.25% rise.

It was the third month in a row that Sentance voted to increase the base rate but all other members voted for no change.

The Bank has left rates unchanged at the historic low of 0.5% since March 2009.

Ben Thompson, director of mortgages at Legal & General, says: “Its getting interesting now and although it was obvious that rates would remain unchanged today there will certainly have been some real debate around whether the recovery is well underway or if we’re in for tougher times again.

“Persistently stubborn inflation combined with a flagging economy is certainly not a marriage made in heaven and the two will no doubt co-habit for some time to come, but sooner or later things will be come clear as the impact of spending cuts and tax increases are felt.

’It is our view that rates will remain flat for sometime to come.”

Paul Hunt, managing director of Phoebus Software, says the MPC will come under increasing pressure to increase rates if inflation continues to grow.

He says: “There is some argument for the MPC to make a gesture of keeping inflation in check by raising rates by 25 basis points. But I don’t think they will.

“Inflation is being maintained above the target rate in order to help the economic recovery.

“Rates won’t go up until next year and quantitative easing won’t be extended unless there is a significant weakening of the economy.

“And despite many predicting that third quarter growth will be weaker than expected, yesterday’s encouraging manufacturing growth figures may alleviate the fears of a double dip.”  

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