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Bank of England set to leave interest rates unchanged

Bank of England governor Mark Carney has written to the Chancellor to explain why inflation is more than 1% off its 2% target Credit: Anthony Devlin / PA Wire/PA Images

Interest rates look set to stay on hold at 0.5% on Monday when the Bank of England announces its first post-election policy decision.

Rates have been at the historic low for six years and the slide in inflation to zero has pushed back expectations for the timing of a hike into 2016.

The Bank's Monetary Policy Committee (MPC) will announce its latest decision tomorrow having met on the day of the poll on Thursday and on Friday.

Meanwhile minutes of the April meeting of the Monetary Policy Committee (MPC) suggested a "hawkish" turn as it pointed to the possibility that inflation might recover more quickly than previously expected.

Consumer Price Index (CPI) inflation was at zero in February and March - rather than turning negative as some expected - meaning it might now have avoided this risk.

The Bank has said it expects CPI, which has been under pressure amid the sliding cost of oil and the supermarket price war, to turn negative "at some point the coming months".

However the latest meeting also said another cause of low inflation - the strength of the pound making imports cheaper - may have been feeding through to CPI more quickly than expected - meaning that a bounce-back could also come sooner.

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One-in-four homeowners 'fear interest rate rise'

Credit: Yui Mok/PA Wire

One in four mortgage holders fear they will be in financial trouble when interest rates start to rise, research has found.

Some 27% of those surveyed for the Building Societies Association (BSA) and charity the Money Advice Trust think they will be in difficulty when the base rate eventually moves off its historic 0.5% low.

One in 14 (7%) people said that they would be in serious financial trouble if mortgage rates and repayments changed as they expect over the next three years, while a further one in five (20%) said this would cause them slight financial problems.

Around 39% of those surveyed said they will be forced to cut spending on holidays and eating out to cope with rate rises, while one-fifth plan to reduce spending on essentials such as clothing and food.

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Interest rates may 'return to pre-crisis' levels in a decade

UK borrowers should expect interest rates to return to their pre-recession levels of around 5 percent within a decade, according to the outgoing Bank of England deputy governor for monetary policy.

Sir Charlie Bean who leaves his job tomorrow. Credit: PA

Sir Charlie Bean who leaves his job tomorrow, said market expectations that the first increase in interest rates would come at the turn of the year were "reasonable".

He told Sky News: "The market has rates going up to 2.5% over next three years. That seems like a broadly sensible judgment."

Sir Charlie admitted that in the run-up to the crash, economists were "not sufficiently cognisant of the risks building up in the financial system" but insisted the economy is far more resilient than when he arrived at the central bank in 2000.

Borrowing costs 'may return to pre-recession levels'

Interest rates are likely to hit 5% within a decade, according to the outgoing Bank of England deputy governor for monetary policy. Sir Charlie Bean said it would be "reasonable" to expect borrowing costs to return to pre-recession levels in the long term - between five to 10 years.

Outgoing Bank of England deputy governor for monetary policy Sir Charlie Bean Credit: PA

Homeowners have enjoyed a historically low 0.5% base rate for five years but the level has caused misery for savers. Sir Charlie told Sky News: "It might be reasonable to think that in that long term you would go back to 5% but it's probably quite a long way down the road."

Earlier this week, Bank of England governor Mark Carney urged people to focus on the "big picture" rather than obsessing about when interest rates will start to rise.

It followed accusations that he had been behaving like an "unreliable boyfriend" by hinting at a rise this year, before appearing to back-pedal.

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