In a move which will surprise no one, the Bank of England’s Monetary Policy Committee, has decided to leave base rate unchanged at 0.5%.
The vote for the status quo means that the Bank has now kept base rate at 0.5% for four years, a record in modern times.
The news that interest rates will remain unchanged for yet another month, will please borrowers, particularly individuals and businesses with interest rates linked to the base rate. However, savers, who have seen interest rates on the best buy savings accounts plummet over recent months, will be less happy, all be it probably resigned to the situation they find themselves in.
Quantitative Easing
Despite three members of the committee, including the Governor of the Bank, Mervyn King, voting last month for an increase to the existing Quantitative Easing (QE) program, no increase was announced this month.
Last month Mr King voted to increase the existing program of QE from £250 billion to £400 billion, however he was outvoted, meaning that no changes were made; we will have to wait until the minutes of this week’s meeting are published to see how the members voted this time around.
Reacting to the news, Stephen Gifford, Director of Economics at the CBI, said: “A combination of mixed economic data and the MPC’s recent tilt in a more dovish direction is likely to have made this decision a close call.”
He continued: “With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.”
Speaking to the Telegraph newspaper, Howard Archer of HIS Global Insight, said: “The Bank of England’s decision to hold off from stimulative action was highly likely the result of a tightly split vote and we strongly suspect that the MPC will act in the second quarter and very possibly as soon as April.”
Archer continued: “Not only is the Bank of England evidently worried by the economy’s ongoing struggles but there is also the strong suspicion that the MPC is keen to be seen to be more flexible and active ahead of Mark Carney’s arrival as governor at the start of July.
There are also signs that the MPC is becoming more worried that the Funding for Lending Scheme may not lift bank lending as much as had been hoped for, particularly to smaller companies.”
In response to the announcement that the QE program would not be extended, the pound rose sharply, having previously fallen on speculation that additional measures would be announced.
The move will also please would-be retirees who are likely to be buying an Annuity in the near future.
As any Annuity rates comparison will show rates fall significantly over recent months, in no small part due to the program of QE, which has reduced gilt yields and consequently pushed Annuity rates lower.
