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UK interest rates kept on hold at 0.5% UK interest rates kept on hold at 0.5%
(about 2 hours 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.
Recent data has underlined worries about the UK's economic recovery, which analysts took as a sign that the Bank would leave rates unchanged. Economists had expected the decision, as recent data has underlined worries about the strength of the UK's recovery.
This is despite the annual rate of inflation rising to 4.5% in April, up from 4% in March, and well above the Bank's 2% target. The decision comes despite the annual rate of inflation rising to 4.5% in April, up from 4% in March, and well above the Bank's 2% target.
It is the 27th straight month that the bank has left rates unchanged.It is the 27th straight month that the bank has left rates unchanged.
Consumers Meanwhile, the European Central Bank's president, Jean-Claude Trichet, has signalled that its interest rate could rise next month.
The record low Bank rate has led to relatively small returns for savers. The ECB on Thursday held rates at 1.25%, but Mr Trichet said the bank would maintain "strong vigilance" on inflation - widely interpreted as a signal to the markets that rates will be raised at the next meeting.
The latest statistics from the Bank of England show that, at the end of May, the average rate of interest with an instant access bank or building society account was 0.3%. This has been unchanged since a slight rise at the start of the year. James Knightley, economist at ING, said that continuing high UK inflation still made a rate rise by the MPC likely this year.
For cash Individual Savings Accounts, the average interest rate was 0.55%. Three years earlier, this had been 4.56%.
However, as long as the Bank rate is low, borrowers - especially those with variable rate mortgages - are seeing relatively low home loan repayments.
Rate 'hike'
James Knightley, economist at ING, said that continuing high inflation still made a rate rise likely this year.
Poor UK economic data has led some economists to "push back expectations for the timing of the first UK rate hike to March next year", he said.Poor UK economic data has led some economists to "push back expectations for the timing of the first UK rate hike to March next year", he said.
"However, with inflation likely to move above 5% in the next three to four months on the back of rising utility bills and food prices and with employment and employment intentions surveys remaining firm, we feel that the balance of probabilities favours an earlier move," he said."However, with inflation likely to move above 5% in the next three to four months on the back of rising utility bills and food prices and with employment and employment intentions surveys remaining firm, we feel that the balance of probabilities favours an earlier move," he said.
Economists say policymakers face a difficult choice: keep rates on hold to help the economy, or raise them to cool inflation.Economists say policymakers face a difficult choice: keep rates on hold to help the economy, or raise them to cool inflation.
But higher rates increase the cost of borrowing, and there are concerns this may hurt the economic recovery.But higher rates increase the cost of borrowing, and there are concerns this may hurt the economic recovery.
Lee Hopley, chief economist at the EEF engineering employers' group, said weak UK growth and financial troubles in the eurozone meant it was "still too early for a rate rise".Lee Hopley, chief economist at the EEF engineering employers' group, said weak UK growth and financial troubles in the eurozone meant it was "still too early for a rate rise".
Consumers
The record low Bank rate has led to relatively small returns for savers.
The latest statistics from the Bank of England show that, at the end of May, the average rate of interest with an instant access bank or building society account was 0.3%. This has been unchanged since a slight rise at the start of the year.
For cash Individual Savings Accounts, the average interest rate was 0.55%. Three years earlier, this had been 4.56%.
However, as long as the Bank rate is low, borrowers - especially those with variable rate mortgages - are seeing relatively low home loan repayments.
New memberNew member
Although the Bank was expected to leave rates unchanged, some members of the MPC have been urging an increase. Although the Bank was expected to leave UK rates unchanged, some members of the MPC have been urging an increase.
At the MPC's meeting in May, policymakers voted six to three in favour of keeping rates on hold.At the MPC's meeting in May, policymakers voted six to three in favour of keeping rates on hold.
It was the fifth month in a row that three members had voted for a rise.It was the fifth month in a row that three members had voted for a rise.
Former MPC member Andrew Sentance had persistently voted for rate rises, but stepped down last month and was replaced by Ben Broadbent.Former MPC member Andrew Sentance had persistently voted for rate rises, but stepped down last month and was replaced by Ben Broadbent.
Lee Hopley said it would be interesting to see if Mr Broadbent had shifted the balance of views when the MPC's minutes are published later this month.Lee Hopley said it would be interesting to see if Mr Broadbent had shifted the balance of views when the MPC's minutes are published later this month.
The MPC did not reveal any new quantitative easing measures.The MPC did not reveal any new quantitative easing measures.