The latest meeting of the Bank of England’s Monetary Policy Committee (MPC) has seen interest rates left on hold at 0.5% and no increase to the program of Quantitative Easing (QE).
Interest rates
With the ongoing crisis in the Eurozone impacting on already weak growth in the UK the smart money was always on the Bank leaving interest rates on hold.
The economy is recovering very slowly from a deep recession, with consumer and business confidence low, rising inflation and unemployment coupled with the crisis in the Eurozone leading many experts to believe that the difficult economic times are here for many months, even years, to come.
It seems that despite inflation being well above the Bank’s target of 2%, the MPC are prepared to leave interest rates low whilst they remain nervous that any rise would further dampen an already weak recovery.
Quantitative Easing
The MPC voted last month to increase the Bank’s existing program of QE by an additional £75 billion; it was therefore unlikely that additional measures would be taken so soon afterwards.
The Bank has said it expects the additional QE measures announced last month to take three months to complete. Therefore no additional QE should be expected before February, indeed a poll by Reuters of leading economists before today’s announcement found that only one out of 24 people polled thought that additional QE measures would be announced today.
Lee Hopley, chief economist at EEF manufacturers’ organisation, said: “There were unlikely to be any further announcements this month following last month’s decision to extend the Bank’s asset purchase programme.
“However, ahead of the November inflation report the committee is likely to be looking at a much weaker set of growth forecasts, where the potential risks to the economy have increased significantly.
“With growing turbulence in Europe, the possibility of further action can’t be taken off the table,” she said.
Savers
The news that interest rates are to remain unchanged for a further month will disappoint many savers, who are finding it almost impossible to get a real return, above inflation, on their savings,
The last rate change was in March 2009, since then savers have had to put up with seeing the interest rates fall on their savings while inflation has risen steadily over the past couple of years.
The combination of low interest rates and high inflation has left many people, particularly pensioners who may have relied on their savings to supplement their pension, with lower incomes whilst at the same time having their capital eroded.
Even tax free savings such as ISAs are not keeping pace with inflation as this ISA comparison shows.
