‘No change for interest rates’

June 18, 2010 at 12:38 pm

The Bank of England has decided to keep interest rates at 0.5%, meaning the rate has now been kept at this historic low for 15 consecutive months. The last time that the interest rate was changed was in March 2009.

The MPC (Monetary Policy Committee) at the Bank of England is responsible for changing the base interest rates. It is thought that it will wait until the emergency budget is announced by the new coalition government on June 22 until it makes any further decisions.

The impact of the budget on inflation will play a large role in how the bank makes its decisions on monetary policy over the next few months, so until it is announced there is little that the Bank is willing to do.

Economists seem to be split on when the rates will finally start to rise again. Some predict that we will be well into next year before the MPC decides to raise the base rate. Others, however, have said that the final quarter of this year is the latest that the Bank should wait as this is essential to avoid the return of high inflation. Other economists have announced that by the end of 2011 interest rates should be up to 3.5%.

In terms of inflation, the 3.7% inflation for April was the highest for 17 months since it reached similar levels in November 2008, according to the CPI (Consumer Prices Index) measure. This is not great news for the Bank of England as it is well above its target of 2%.

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