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Base rate held at 0.5%

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  • 07/04/2011
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Base rate held at 0.5%
The Bank of England has held base rate at 0.50% for the 25th consecutive month in the face of weak economic recovery.

The Monetary Policy Committee (MPC) has also decided to maintain its quantitative easing (QE) programme at £200bn.

Its decision comes as little surprise in the face of fragile economic growth, with the National Institute of Economic and Social Research (NIESR) estimating quarterly growth to be just 0.1% over the last six months.

Previous predictions by economists had pinpointed May as the likely month for the MPC to act.

However, forecasts have now shifted to a rise in June or July at the earliest, with last month’s Office of National Statistic figures revealing inflation has risen to 4.4%, more than double the MPC’s target, as it was confirmed that GDP suffered a 0.6% contraction in Q4.

Minutes for the past two months’ meetings have revealed MPC members are divided in a four-way split as they struggle to balance growth with inflation.

Spencer Dale, Martin Weale and Andrew Sentance have all voted for a rate hike, while Adam Posen has called for QE to rise by £50bn.

However, the hawks are set to lose their strongest voice in May, with Sentance stepping down from the MPC after next month’s meeting to be replaced by Goldman Sachs European economist Ben Broadbent.

Sentance has been calling for interest rates to rise since June last year.

April’s meeting minutes, to be published on 20 April, will show whether the deadlock continues.

Jonathan Samuels, chief executive of Dragonfly Property Finance, said: “The MPC is very nervous about inflation but extremely nervous about the British consumer, whose confidence is at an all-time low.

“For the Bank, the consumer is still king. It has to be. Raise interest rates and you risk paralysing the economy as already embattled consumers go even further into their shells.”

He added: “When rate rises do come, the property market will be especially vulnerable. While demand for property among professional investors is still robust, among owner-occupiers it remains weak. A rate rise will result in even more buyer caution, placing additional downward pressure on prices.”

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