Interest rates kept on hold

Financial News

In an unsurprising move the Bank of England has left interest rates on hold at 0.5% for a 12th consecutive month.

The Bank also announced no change to the policy of leaving Quantative Easing (QE) on hold for the time being.

These decisions reflect the delicate balancing act that the Bank needs to perform in its quest to help the fragile economic recovery with economists believing that any rise in the cost of borrowing would have a harmful effect on the recovery.

The indications are that interest rates will remain low for most, if not all, of 2010. However, if inflationary pressures in the economy continue, created by the policy of QE, this could lead to a rise in interest rates sooner than expected. The latest inflation figures, released last month, showed the annual inflation rate rising by 3.5% in January, the fastest annual pace for 14 months. This compares with 2.9% the previous month.

The Bank believes that the inflationary spike is temporary, and is mainly due to the increase in VAT at the start of the year.

The news that base rate is to stay unchanged will be welcomed by homeowners who have a Tracker mortgage linked to Bank Base rate, however for savers it is far from a rosy picture. They are being hit from two sides with inflation rising and low interest rates on their savings, meaning that it is hard for them to get a real return above inflation.

Over the next few days we will be highlighting the accounts that provide a real return above inflation.