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| UK interest rates set to be held at 0.5% | UK interest rates set to be held at 0.5% |
| (40 minutes later) | |
| UK interest rates are expected to be held at 0.5% later, after a meeting of the Bank of England's rate-setters. | UK interest rates are expected to be held at 0.5% later, after a meeting of the Bank of England's rate-setters. |
| Policymakers have been under pressure to consider raising rates from historic lows in a bid to rein back inflation. | Policymakers have been under pressure to consider raising rates from historic lows in a bid to rein back inflation. |
| But data showing a surprise 0.5% contraction in UK GDP during the last three months of 2010 appeared to make an imminent rate rise less likely amid fears it would stifle a recovery. | But data showing a surprise 0.5% contraction in UK GDP during the last three months of 2010 appeared to make an imminent rate rise less likely amid fears it would stifle a recovery. |
| At its last meeting, two of the bank's nine rate-setters backed a rate rise. | At its last meeting, two of the bank's nine rate-setters backed a rate rise. |
| Tough choice | Tough choice |
| The Consumer Prices Index (CPI) measure of inflation has exceeded the Bank's 2% target by more than one percentage point for more than a year, and rose to 3.7% in December. | The Consumer Prices Index (CPI) measure of inflation has exceeded the Bank's 2% target by more than one percentage point for more than a year, and rose to 3.7% in December. |
| Last month, Bank England governor Mervyn King forecast that inflation could rise to 4-5% in the coming months because of higher food and fuel prices and a rise in VAT. However, he also added that inflation would fall back sharply in 2012. | Last month, Bank England governor Mervyn King forecast that inflation could rise to 4-5% in the coming months because of higher food and fuel prices and a rise in VAT. However, he also added that inflation would fall back sharply in 2012. |
| Raising rates takes demand out of the economy and slows down inflation. But it also increases the cost of borrowing and there are concerns this may tip the economy back into recession. | Raising rates takes demand out of the economy and slows down inflation. But it also increases the cost of borrowing and there are concerns this may tip the economy back into recession. |
| The British Retail Consortium (BRC) urged the Bank to hold its nerve, warning that a rise could damage the economic recovery. | The British Retail Consortium (BRC) urged the Bank to hold its nerve, warning that a rise could damage the economic recovery. |
| "Raising rates at a time when consumer confidence is weak, the housing market is slowing and lending hasn't revived would only undermine a very uncertain recovery," said BRC director general Stephen Robertson. | "Raising rates at a time when consumer confidence is weak, the housing market is slowing and lending hasn't revived would only undermine a very uncertain recovery," said BRC director general Stephen Robertson. |
| "The economy needs all the support it can get, especially in the light of negative GDP figures. Raising rates prematurely will hamper the recovery and damage retailers ability to invest, grow and create jobs." | "The economy needs all the support it can get, especially in the light of negative GDP figures. Raising rates prematurely will hamper the recovery and damage retailers ability to invest, grow and create jobs." |
| While the economy is seen as weak, recent figures from Markit/CIPS indicated that the manufacturing sector had seen record activity in January, while the construction and service sectors had returned to growth. | While the economy is seen as weak, recent figures from Markit/CIPS indicated that the manufacturing sector had seen record activity in January, while the construction and service sectors had returned to growth. |
| "The monetary policy committee (MPC) is currently negotiating a tortuous path between high and rising CPI on one side and faltering economic activity and serious growth headwinds on the other," said Howard Archer, chief economist at IHS Global Insight. | "The monetary policy committee (MPC) is currently negotiating a tortuous path between high and rising CPI on one side and faltering economic activity and serious growth headwinds on the other," said Howard Archer, chief economist at IHS Global Insight. |
| A rise in rates would be welcomed by many savers who have seen low returns in the past couple of years. | |
| However, it would also restrict the spending power of homeowners with tracker mortgages and people repaying other debts. | |
| Figures earlier this week from financial information service Moneyfacts suggested that average fixed-rate mortgages had been at their most expensive for six months at the start of February. | |
| It said that lenders were finding that the cost of raising money themselves had risen in recent months, and this increased cost was being passed on to customers. |