Base rate freeze goes on as Bank weighs up risks

The Bank of England’s Monetary Policy Committee has decided to keep the base rate on hold at 0.5%, while freezing the quantitative easing programme at £200bn.

The base rate has now been at a record low of 0.5% since March last year.

Lending data from the Bank shows mortgage approvals sank to a nine-month low in February, going from 48,099 in January to 47,094.
Remortgage approvals showed a slight increase to 27,297 in February from 24,458 in January.

Lai Wah Co, head of economic analysis at the Confederation of British Industry, says she wasn’t expecting the Bank to change interest rates or its quantitative easing policy this month as the MPC is waiting to see how the balance of risks to the economy plays out.

She says: “Growth in the eco-nomy seems to have held up reasonably well in Q1 2010, albeit at a slow rate, but there is still uncertainty about the strength and sustainability of the recovery.

“At last month’s MPC meeting some members were concerned about the inflationary risks arising from higher energy prices and a weak pound so it will be interesting to see the Bank’s inflation outlook when it publishes its new forecast next month.”

David Kern, chief economist at the British Chambers of Commerce, says that the MPC should consider new techniques to improve the effectiveness of the quantitative easing programme.

He says: “A fragile recovery is underway but the upturn must be nurtured to counter risks of a relapse. Despite the upward move in gross domestic product in Q4 2009 and the prospect of growth in Q1 this year the economy remains weak and vulnerable.

“It would be wrong to con-template raising interest rates or reducing quantitative easing at present. Given the dangers still facing the economy it is important that the MPC perseveres with its expansionary strategy.”

He adds: “The threat of a double-dip recession is more serious in the short term than rising inflation.”