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.