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| UK interest rates kept on hold at 0.5% | UK interest rates kept on hold at 0.5% |
| (about 1 hour later) | |
| UK interest rates have been kept at the record low of 0.5% again by the Bank of England's Monetary Policy Committee. | UK interest rates have been kept at the record low of 0.5% again by the Bank of England's Monetary Policy Committee. |
| Data this week pointed to a slowdown in growth in manufacturing, construction and services, which economists took as a sign that the Bank would not change rates with the recovery still weak | Data this week pointed to a slowdown in growth in manufacturing, construction and services, which economists took as a sign that the Bank would not change rates with the recovery still weak |
| This is despite the fact that inflation is currently at 4%, double the Bank's target rate. | This is despite the fact that inflation is currently at 4%, double the Bank's target rate. |
| The MPC did not reveal any new quantitative easing measures either. | The MPC did not reveal any new quantitative easing measures either. |
| Separately, the European Central Bank also held rates for the eurozone, after raising them from 1% to 1.25% last month. | |
| Split committee | |
| The Bank has faced a difficult choice - either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation. | The Bank has faced a difficult choice - either keep interest rates low to try to aid the economic recovery, or raise them to try to cool inflation. |
| Raising rates takes demand out of the economy and slows down inflation. | 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 UK back into recession. | But it also increases the cost of borrowing, and there are concerns this may tip the UK back into recession. |
| The economy shrank by 0.5% at the end of last year, but returned to growth in the first three months of 2011, expanding by 0.5%. | The economy shrank by 0.5% at the end of last year, but returned to growth in the first three months of 2011, expanding by 0.5%. |
| Although the Bank was widely expected to leave rates unchanged, some members of the committee have been pushing for an increase. | |
| At the MPC's April meeting, three out of the nine members voted for a rise. | |
| 'Murky recovery' | |
| Earlier on Thursday, figures showed that growth in the UK's service sector slowed more than expected in April. | |
| The Purchasing Managers' Index (PMI) for services fell to 54.3 from 57.1 in March, compared with forecasts of a more modest drop to 55.7. | |
| This followed similar falls in the PMIs for manufacturing and construction, released on Tuesday and Wednesday respectively. | |
| "Our view remains that the Bank is likely to move away from the emergency 0.5% rate later this year," Ian McCafferty, the CBI's chief economic adviser, said. | |
| Lee Hopley, chief economist at the manufacturers' organisation, the EEF, agreed that it was too soon for an increase in rates. | |
| "The middling growth figures for the start of this year were unlikely to tilt the balance of votes towards a rise this month," she said. | |
| "So long as the underlying economic recovery remains murky the case for a rate rise can't be made until it becomes clearer." | "So long as the underlying economic recovery remains murky the case for a rate rise can't be made until it becomes clearer." |
| The British Chambers of Commerce (BCC) said UK businesses would welcome the MPC's decision. | |
| "Inflation, though well above target, saw a fall to 4% in March, and combined with subdued wage pressures, the arguments for an increase in rates have weakened considerably in recent weeks," the BCC's chief economist, David Kern, said. | |
| "At a time when the government is tightening fiscal policy through its deficit-cutting programme, premature rate increases could have a severe impact on growth and jobs." |