Bank keeps interest rates on hold

The Bank of England’s Monetary Policy Committee has decided to keep base rate at 0.5% for the 14th month in a row.

The MPC announcement on interest rates was delayed from May 6 in order to allow for the general election.

The committee has also decided not to extend its £200bn quantitative easing programme.

The MPC’s minutes from April’s meeting pointed to some concern among MPC members that market predictions were forecasting a spike in inflation.

Annual UK inflation as measured by the Consumer Prices Index reached 3.4% in March from 3% in February, while the Retail Prices Index rose to 4.4% from 3.7%.

But it is thought that although inflation is rising, the MPC will look to keep rates low in the short-term as it awaits clarity on the shape of the new government and its economic policies.

The MPC will publish its latest inflation and output projections in the Inflation Report on Wednesday May 12.

Ray Boulger, senior technical manager at John Charcol, says: “The MPC will no doubt have been made aware of the inflation forecasts to be published on Wednesday in the quarterly Inflation Report.

“But despite last week’s wholesale price index showing a worrying upward trend there are still enough concerns about the health of global economy, as witnessed by the massive weekend bailout for the Euro, to suggest it is still much too early to start tightening monetary policy.

“As the talks between the Conservatives and Liberal Democrats appear to be making good progress the markets seem prepared to wait for the outcome, particularly with the Euro bailout taking centre stage today.”

Stuart Law, chief Executive of Assetz, says:“Faith in the UK markets will be tested over the coming weeks following the hung parliament situation the country now finds itself in, and the Bank is charged with sticking to its task of paving the way towards economic growth.

“Damage to the housing market depends on the knock-on effects of any impact to sterling and the UK money markets.

“Early indicators are that problems at home are being overshadowed by current chaos in the eurozone but this will need to be carefully monitored.

“If prices in one area, such as bonds, are forced up, mortgage rates could follow.”