Bank of England sits tight and keeps interest rates at 0.5%

11th May 2015


The Bank of England’s Monetary Policy Committee (MPC) has kept the cost of borrowing at its historic low of 0.5% for another month.

While the Bank delayed announcing its interest rate decision until Monday to avoid potentially influencing the General Election, the market was not anticipating any alteration to the current level.

The Bank also kept its quantitative easing (QE) programme unchanged at £375bn.

Interest rates have now been at their all time low for more than six years after being slashed back during the financial crisis in order to boost economic growth.

Howard Archer, chief UK and European economist at IHS Insight said that given UK GDP growth slowed by more than expected in the first quarter, while survey evidence for April was mixed and consumer prices remained flat year-on-year in March, the case for unchanged interest rates for the time being has, if anything, strengthened.

He added: “We suspect that the Bank of England will take the view that the recent slowdown in UK economic activity has been significantly influenced by increased business and to a lesser extent consumer – caution ahead of the general election.

“The Bank of England will likely assume that growth will pick up in the second half of the year, especially now that a majority Conservative government has emerged from the election and political uncertainty should wane, although the government will clearly face a tough time on many issues going forward given its small majority – especially on Scotland and the EU membership referendum.”

In line with the general market consensus, Archer retains the view that the Bank’s next move will be to raise interest rates from 0.5% to 0.75% in early 2016.

“Further out, we see interest rates rising gradually to 1.5% at the end of 2016 and to 2.50% at the end of 2017,” he added.

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