Bank of England holds interest rates at 0.5%

The Bank of England’s rate setting committee has voted to keep interest rates at their record low of 0.5% for an 18th consecutive month.

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by Chris Marshall on Sep 09, 2010 at 12:00

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Bank of England holds interest rates at 0.5%

The Bank of England’s rate setting committee has voted to keep interest rates at their record low of 0.5% for an 18th consecutive month.

The decision, made at the end of the Monetary Policy Committee’s monthly two-day meeting at Threadneedle Street, comes as little surprise as most economists do not expect a rise in the base rate until sometime next year. But it is another blow for savers who will continue suffering woefully low returns on their cash.

There had been speculation that the Bank of England might crank up the printing presses again and extend its £200 billion programme of quantitative easing, the process in which the central bank buys back gilts from banks to help increase the amount of money they can lend. But so far the fear of the impact this would have on already above-target inflation has held the committee’s hand and there was no change today.

Consumer price inflation edged down to 3.1% in July, but has remained stubbornly above the 2% target.

The committee must balance the need to keep inflation below target with the threat of a return to recession in the UK, defined as two consecutive quarters of negative growth.

However, most economists and commentators agree that the economy is more likely to face a period of slow and volatile growth accompanied by rising unemployment, low interest rates and sticky inflation than a 'double dip'.

The minutes from the Bank’s August meeting showed that the committee considered a small increase in the base interest rate. However, all but one member, Andrew Sentance, eventually voted for rates to remain on hold. The committee believes that inflation will return to target in the medium term, when temporary pressures wear off.

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8 comments so far. Why not have your say?

Hurrahh! I am loving this recession...rock bottom finance costs and booming rental demand...

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It's comment like these, Landlord X, that causes a lot of the bad feelings towards us landlords (yes I am one too), coming at a time when there is high inflation, especially food, and insecurity over jobs. A very thoughtful remark! Spare a thought for for the rest of society, especially those that are suffering, tomorrow when interest rates are sky high (and they are sure to go higher than most people expect), property prices have fallen and no chance of a sale, it might be you that is in trouble.

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I prefer Landlord X to speak his mind. It just exemplifies the stupidity of the BoE decision to bale out the speculators at the expense of the prudent.

The BoE are storing up trouble for the future, with no moral hazard, when the economy recovers EVERYONE will leverage up and pile into property knowing that prices WILL only ever go up, the BoE and government will ensure it does!

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@ Anonymous1

Oh excuse me for not being a pessimist

Maybe you prefer high interest rates, inflation and skyhigh prices for everything...with house prices rising far beyond what anyone can afford...?? And when has anyone in the private sector ever had job security...you ARE having a laugh?

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@ Landlord X, surely inflation would be lower in times of high interest rates, therefore house prices would not be shooting up beyond FTB affordability?

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Landlord X

I think you must have misunderstood the point I was trying to make, ... it was ...

Yes things are good for landlords at the moment, but let's not rub salt into the wounds of those that missed the property boat of the last 15 years, lest it is they that have the last laugh.

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So savers are being punished?

Clearly the bank would like them to spend some of their money!!

That's just economics - some times are good for savers, and others for borrowers.

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LANDLORD X

Sep 11, 2010 at 11:24

I don't think that there is ever a good time for savers.

Even whe interest rates were 5.75% in 2008, the interest received on cash deposits was not enough to keep up with inflation after tax was deducted. Leaving excess cash lying about never is a good plan.

And for some reason, the tax authorities and bank policy favour borrowing over storing cash. Which is good for investors but bad for savers. If you don't like it, complain to your MP...don't hold your breath

And the fact remains that the huge CGT exemption on one's main residence has made a lot of people over the age of 40 very wealthy indeed. If I sell a one-bed investment flat housing a poor person...I pay CGT. If I sell my £25million 20-bed mansion in Mayfair, and it is my main residence, then I pay not one penny in tax. You think that's fair?

Point is, low interest rates are highly beneficial for many businesses and for households with mortgages. It is great news that base rates are being kept low. Yes, people are worried about their jobs...but it would be a lot worse if interest rates rose sharply.

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