Interest rate held at 0.5%

The Bank of England has held the interest rate at a record low of 0.5% and maintained the funding for stimulating economy at £375m, despite mounting pressure to implement emergency measures to avoid a triple dip recession.

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Bank of England 'missed opportunity' to invigorate economy

Some economists believe the Bank of England missed an opportunity today to invigorate Britain's economy by not increasing the money supply through quantitative easing.

The consensus expectation was that QE [quantitative easing] will be expanded in November. Ours was - why wait? We expect next week's Inflation Report to show a slashing in the Bank's projections, with a GDP growth projection for 2012 close to zero... We suspect that the committee was loathe to respond to an early estimate of GDP that was heavily affected by the weather and a lost working day.

– Julian Moosuddee, Scotia Capital

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Economic outlook 'fragile' as Bank keeps rates on hold

Although the Bank of England has considered cutting interest rates below the record low level of 0.5%, some economists believe the Bank prefers to use quantitative easing. That involves injecting more money directly into the economy to help stimulate growth.

With the latest extension of QE launched only last month, there was no great expectation for any new announcements from the MPC today... However, the outlook for the UK economy remains fragile, particularly in light of the disappointing official data for the first half of the year and the recent slowdown in global momentum.

– Anna Leach, the CBI's head of economic analysis

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UK economy shrank by 0.7% in second quarter

  • The economy shrank by 0.7% in the second quarter, meaning the UK is now mired in the longest double-dip recession since 1955.
  • But lower borrowing costs would deliver yet another blow to Britain's savers, who have lost out since rates hit their current historic low in March 2009.
  • The Bank's main concern over a rate cut beyond 0.5% is the impact it could have on some banks' ability to lend.
  • A reduced rate would be the lowest in the Bank's 318-year history, with a cut to 0.25% saving a borrower with an average lifetime tracker rate on a £200,000 mortgage £328.56 a year.
  • Lenders have assets, mainly mortgages, with interest payments contractually linked to the Bank's rate and a reduction below 0.5% might squeeze some lenders' interest margins to the point at which they become less able to offer new loans to customers.

Bank of England faces pressure to help economy

Bank of England policymakers are facing mounting pressure to turn to further emergency measures to boost the recovery as the economic outlook becomes increasingly bleak.

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The Bank of England will be urged to help the economy Credit: Carl Court/PA Wire

The Bank's Monetary Policy Committee (MPC) is expected to hold quantitative easing levels at £375 billion after last month's £50 billion injection while interest rates will be kept at record lows of 0.5%.

But economic growth figures released since the nine-strong panel's July meeting revealed a sharper-than-expected decline in output between April and June.