Bank keeps UK interest rates on hold must visit

UK interest rates have been held at the record low of 0.5% for another month by the Bank of England.

The Bank also kept the size of its bond-buying economic stimulus programme unchanged at £375bn.

The news is in line with analysts' expectations, despite recent evidence that the UK economic recovery is strengthening.

Worries about rising house prices in parts of the UK have intensified the debate over when rates might increase.

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With the UK economy growing stronger than pretty much every other rich country, markets expect the Bank of England to raise its policy rate in the first quarter of next year”

End Quote The Bank's Monetary Policy Committee (MPC) have kept rates at the historic low of 0.5% for more than five years, amid worries that the finances of many individuals and businesses remain too weak to withstand a rise.

But the pace of economic recovery is picking up, and last week the Organisation for Economic Co-operation and Development (OECD) raised its UK growth forecast for this year from 2.4% to 3.2%.

The OECD did, however, sound a warning that the housing market could be overheating. It said that the UK government should consider restricting access to the Help to Buy scheme, which provides mortgage guarantees and loans to people struggling to find deposits on homes.

The British Chambers of Commerce said on Thursday that a rate rise soon would be "premature".

BCC chief economist David Kern said: "The decision to maintain interest rates and quantitative easing was unsurprising and appropriate.

"Businesses need clarity that encourages them to increase investment, and at the moment the MPC is delivering this. However its efforts are hampered by repeated calls for interest rate rises whenever a piece of positive news is published.

"Such a move would be premature. The MPC should instead strengthen the clarity of its forward guidance message."

'Blunt instrument'

Many economists have pencilled in a rate rise early next year. The Bank hinted in February that the second quarter of next year was a possible timeframe.

However, Scotiabank economist Alan Clarke said that if wages continue to pick up, then a rise could come before Christmas.

Martin Beck, senior economic adviser to the Ernst & Young ITEM Club, said: "The pound's continued climb and subdued inflation expectations, also, point to benign prospects for inflation in the near-term.

"The Bank is likely to use its macro-prudential tools, possibly as soon as June's meeting of the Financial Policy Committee, before deploying the blunt instrument of an interest rate rise.

"Next week's Inflation Report should provide more enlightenment, pointing, in our expectation, to rates remaining very low for some time yet."

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Bank keeps UK interest rates on hold must visit

UK interest rates have been held at their record low of 0.5% for another month by the Bank of England.

The Bank also kept the size of its bond-buying stimulus programme unchanged at £375bn.

No changes had been expected to either rates or the bond-buying measure, despite recent evidence that the UK economy is continuing to recover.

Most economists do not expect the Bank to increase interest rates until the first half of next year.

The recent fall in the rate of inflation has also reduced any pressure on the Bank's monetary policy committee (MPC) to raise rates. The UK's inflation rate fell to 1.7% last month, which was a four-year low and below the Bank's target of 2%.

Investec chief economist Philip Shaw said: "For now, with the economy growing respectably but not roaring away, we see it likelier than not that the MPC will avoid tightening policy this year, especially with inflation expected to remain below target over the medium term."

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The second quarter of 2015 currently looks the prime candidate for when the Bank of England starts to inch interest rates up - given both the inflation forecasts contained in the Bank of England's February Quarterly Inflation Report and the general drift of comments made by MPC members in recent weeks."

Clarity

Earlier this week, the International Monetary Fund said the UK economy would be the fastest-growing in the G7 this year.

It predicted the UK economy would grow by 2.9% in 2014, up from its previous estimate of 2.4%, and will see growth of 2.5% next year.

However, recent business surveys have suggested that the pace of growth eased slightly in March, and David Kern, chief economist at the British Chambers of Commerce, warned against any premature action by the Bank.

"Existing calls from some quarters for an early rate rise are unwelcome and risk unsettling business plans for higher investment," he said.

"The Bank of England must strive to maintain an environment that supports investment, with clarity on the future path of interest rates and action to keep inflation low."

The Bank had previously pledged not to raise interest rates until the UK unemployment rate fell to 7% or below, but it changed this policy when the jobless rate fell faster than expected.

The Bank is now looking at a range of different indicators, including how far the economy is running below capacity.

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