MPC freezes base rate at 0.5% and holds fire on further cash injections

The Bank of England’s Monetary Policy Committee has voted to hold interest rates at 0.5% for the 17th consecutive month.

The MPC also voted not to extend the Bank’s quantitative easing programme.

MPC member Andrew Sentance voted for a rise in interest rates at the previous two meetings while other members voted to keep the base rate at 0.5%.

The Bank’s inflation target of 2% is still being exceeded, with price rises being measured at 3.2%.

Ben Thompson, director of mortgages at Legal & General, says: “Things are changing almost by the month, with inflation, growth and output figures all being watched closely.

“It’s now clear that the base rate will remain on hold for some time but the committee was split at its previous two meetings and it’s likely to have been last week too.”

He adds: “The problem is that upside and downside risks are battling for priority. Bank governor Mervyn King recently said that he has his foot firmly on the money accelerator, so we can only hope he knows what his braking distance is.”

Alison Beech, business relation-ship director at Spicerhaart and Valunation, adds that the MPC’s decision is unsurprising and although a 0.25% rise could curb inflation other economic factors take precedence.

She says: “While the MPC has not been brave enough to vote for a rise this month I expect at least one increase before the end of the year. Why not do this now rather than wait so we could create some distance between an interest rate hike and the VAT rise to 20% scheduled for January?”

But Jonathan Samuels, chief executive officer of Drawbridge Finance, says he expects to see the base rate held for the rest of 2010.

He says: “Although the economy is improving there are still mixed messages, and until the financial ground is firmer the committee is unlikely to raise the base rate.

“It’s crucial that when rates do rise they go up at a pace that does not give the economy the bends.”