Page last updated at 08:59 GMT, Thursday, 9 April 2009 09:59 UK

Rates expected to stay unchanged

Exterior of the Bank of England
The Bank of England has already cut rates six times since October

The Bank of England is expected to keep interest rates on hold later, with sharp cuts in recent months having left little scope for further reductions.

Rates now stand at an all-time low of just 0.5% after six cuts since October last year, when they stood at 5%.

The Bank has introduced quantitative easing, or expanding the money supply, to help boost lending and so far has injected £26.4bn into the system.

The Bank and the government are trying to lift the economy out of recession.

Spending boost

Lowering interest rates - or the cost of borrowing - is one tool for achieving that, as repayments on mortgages and loans become far less onerous.


In the face of recession... quantitative easing should be aggressively pursued

David Kern, British Chambers of Commerce

It is hoped that many mortgage holders will have more money in their pockets and will start spending again, thus boosting the UK economy.

However, while low rates are good news for some mortgage holders, they are not so welcome for savers, who have seen the returns paid on their deposits slashed.

There have been criticisms that lenders have not been passing on the recent cuts in interest rates.

"Increasingly, lenders have not been passing the rate cuts on," said Michael Coogan, from the Council of Mortgage Lenders.

"Most actually did not move at all, the reason was they were trying to keep savings rates as high as possible."

'Lending capacity'

And with rates already so low, the bank is being forced to look at other policies to boost the economy.

This is why it introduced quantitative easing - buying assets such as government and corporate bonds to increase the supply of money in the economy, in the hope that banks will eventually find it easier to lend to companies and individuals.

The Bank has said that it will inject £75bn into the economy in coming months, with another £75bn to hand if needed.

Bank of England interest rates

Peter Warburton, director of the consultancy Economic Perspectives and a member of the Shadow Monetary Policy Committee, said he thought quantitative easing was "working".

He said the £25bn injected into the economy was a "powerful flow in a single month".

"It should enable banks to have more lending capacity - it does not dictate that they will necessarily lend to firms or as mortgages, but nevertheless it should help their position."

But David Kern, chief economist at the British Chambers of Commerce, said the measures taken in recent months "have failed to alleviate the downturn".

"In the face of recession, the policy stance must remain expansionary and quantitative easing should be aggressively pursued."

The rate-setting decision comes as the sharp fall in mortgage repayments, caused by the cuts in interest rates, saw the Retail Prices Index (RPI), which includes housing costs, fall to zero for the first time in 49 years in February.

However, the Consumer Prices Index (CPI) rose to an annual rate of 3.2% in February, from 3% a month earlier, still above the target of 2%.



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