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UK interest rates held at record low of 0.5% UK interest rates held at record low of 0.5%
(about 1 hour later)
UK interest rates have been held again at their record low of 0.5% by the Bank of England's Monetary Policy Committee.UK interest rates have been held again at their record low of 0.5% by the Bank of England's Monetary Policy Committee.
There has now been no change to the Bank rate for two years, despite the fact that inflation is currently twice the Bank's target rate.There has now been no change to the Bank rate for two years, despite the fact that inflation is currently twice the Bank's target rate.
But there had been some speculation that rates could change this month after three MPC members voted for a rise in February.But there had been some speculation that rates could change this month after three MPC members voted for a rise in February.
No new quantitative easing measures were unveiled either.No new quantitative easing measures were unveiled either.
The Bank has faced a dilemma over what to do on interest rates.The Bank has faced a dilemma over what to do on interest rates.
Raising rates slows down inflation - and it is the Bank's job to keep inflation in check.Raising rates slows down inflation - and it is the Bank's job to keep inflation in check.
But it also increases the cost of borrowing and there are concerns this may tip the UK back into recession, especially after the shock 0.6% contraction in the economy seen in the last quarter of 2010.But it also increases the cost of borrowing and there are concerns this may tip the UK back into recession, especially after the shock 0.6% contraction in the economy seen in the last quarter of 2010.
"MPC members continue to have widely divergent expectations about the outlook for inflation, so this decision comes as no surprise," Ian McCafferty, CBI chief economic adviser, said."MPC members continue to have widely divergent expectations about the outlook for inflation, so this decision comes as no surprise," Ian McCafferty, CBI chief economic adviser, said.
Ring May 5th in the diary. That could be a critical day for the Bank of England and the course of interest rates. By then the MPC will have the first estimate of economic output (GDP) for the opening three months of this year.Ring May 5th in the diary. That could be a critical day for the Bank of England and the course of interest rates. By then the MPC will have the first estimate of economic output (GDP) for the opening three months of this year.
It will also have its latest Inflation Report. That data could well provide the final shove of the "no change" members of the committee into the rate hike camp.It will also have its latest Inflation Report. That data could well provide the final shove of the "no change" members of the committee into the rate hike camp.
But then again… if the first quarter GDP figures are weaker than expected the inflation debate could shift. Much will depend on oil prices and the extent to which the MPC thinks the economy will be affected by the recent surge.But then again… if the first quarter GDP figures are weaker than expected the inflation debate could shift. Much will depend on oil prices and the extent to which the MPC thinks the economy will be affected by the recent surge.
A lot is riding on that May meeting. But a surprise in April can't totally be discounted.A lot is riding on that May meeting. But a surprise in April can't totally be discounted.
"The short-term data continue to cloud the issue, but there are growing risks of inflation becoming more ingrained as firms attempt to bolster their profit margins and employees seek higher wage rises in the face of sharply increased costs of energy and commodities.""The short-term data continue to cloud the issue, but there are growing risks of inflation becoming more ingrained as firms attempt to bolster their profit margins and employees seek higher wage rises in the face of sharply increased costs of energy and commodities."
Consumer price inflation currently stands at 4%, well above the Bank's target of 2%.Consumer price inflation currently stands at 4%, well above the Bank's target of 2%.
As well as the VAT increase, the rate of inflation has also been pushed up by oil prices, which have risen amid concerns about political unrest in the Middle East and North Africa.As well as the VAT increase, the rate of inflation has also been pushed up by oil prices, which have risen amid concerns about political unrest in the Middle East and North Africa.
The British Chambers of Commerce (BCC) welcomed the central bank's decision to leave rates on hold but said that ongoing speculation over interest rates could harm business.The British Chambers of Commerce (BCC) welcomed the central bank's decision to leave rates on hold but said that ongoing speculation over interest rates could harm business.
"While the MPC cannot forecast its future actions, the way it currently communicates can create uncertainty," said David Kern, chief economist at the BCC."While the MPC cannot forecast its future actions, the way it currently communicates can create uncertainty," said David Kern, chief economist at the BCC.
"The MPC must address this in order to give businesses and market analysts a greater degree of predictability.""The MPC must address this in order to give businesses and market analysts a greater degree of predictability."

The Bank of England's dilemma

The Bank of England's interest rate-setters on the Monetary Policy Committee (MPC) had a tough decision to take on 10 March. They had to decide whether to raise rates from the record low of 0.5% where they have stood for the past two years.
One member, Andrew Sentance, has been alone in voting for a rate rise for most of the past year. But in the meetings in 2011, others have been joining him, and last month the motion to keep rates unchanged was only carried by six votes to three.
Those voting for an immediate rate rise have been concerned that there is not yet any sign of inflation coming down. Raising rates is supposed to reduce inflation. The MPC's job is to keep inflation measured by the Consumer Prices Index at around 2%.
The majority view in March was that the rate rise should be delayed because the main risk on inflation was that the weak economy could send the rate of inflation well below the 2% target. This fear was stoked by the contraction in the UK economy in the last three months of 2010.
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The Bank of England's dilemma

The Bank of England's interest rate-setters on the Monetary Policy Committee (MPC) had a tough decision to take on 10 March. They had to decide whether to raise rates from the record low of 0.5% where they have stood for the past two years.
One member, Andrew Sentance, has been alone in voting for a rate rise for most of the past year. But in the meetings in 2011, others have been joining him, and last month the motion to keep rates unchanged was only carried by six votes to three.
Those voting for an immediate rate rise have been concerned that there is not yet any sign of inflation coming down. Raising rates is supposed to reduce inflation. The MPC's job is to keep inflation measured by the Consumer Prices Index at around 2%.
The majority view in March was that the rate rise should be delayed because the main risk on inflation was that the weak economy could send the rate of inflation well below the 2% target. This fear was stoked by the contraction in the UK economy in the last three months of 2010.
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