Page last updated at 12:46 GMT, Thursday, 9 April 2009 13:46 UK

Bank keeps interest rates at 0.5%

UK interest rate graph

The Bank of England has kept interest rates on hold at 0.5%, in a widely expected move following a number of rate cuts in recent months.

Rates remain at an all-time low after six cuts since October last year, when interest rates stood at 5%.

The Bank is also continuing with quantitative easing, or creating money to help boost lending. It has so far injected £26.4bn into the system.

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

New policies

As well as keeping rates on hold, the Bank's Monetary Policy Committee also voted to continue with "the programme, announced on 5 March, of asset purchases totalling £75bn financed by the issuance of central bank reserves".

The first tentative signs [of quantatative easing] have been encouraging

John Cridland, CBI deputy director-general

With rates already so low, the Bank has been 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.

John Cridland, CBI deputy director general, said: "It is too early to judge quite how quickly this will begin to affect the broader economy.

"But the first tentative signs of the impact on gilt yields, corporate spreads and commercial paper issue have been encouraging."

Savers versus borrowers

That may soon begin to flow through to businesses and homeowners, according to Michael Coogan from the Council for Mortgage Lenders.

Bank of England
See how low rates are affecting your savings and mortgages
We explain how the Bank's new policy of quantatative easing works
And check out our guide to getting help if you lose your job, dealing with debt and getting pensions advice
For more go to our in-depth guide to the UK recession

"There are a number of institutions who are going to make significant commitments to lend money to both to businesses and for home ownership," he told BBC News.

"But what we have also got is a market where there is a large number of lenders who are not as active, such as building societies and specialist lenders."

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.

"Whilst savers will be pleased that rates have not been cut any further, this will do nothing to help those who have seen the income they earn on their savings diminish sharply in recent months," said Adrian Coles, director-general of the Building Societies Association.

He added: "Leaving Bank Rate on hold allows the impact on the wider economy of the recent rate cuts and the decision to start quantitative easing to be assessed. It will take some time before the effectiveness of these policies becomes more clear."

Producer prices ease

The latest interest rate decision came shortly after economic data showed exporters were benefiting from a weaker pound.

UK's goods trade gap with countries outside the European Union narrowed by more than expected to £3.964bn in February from £5.631bn the month before.

Exports were up 12.8% and imports were down 5.4%, as the weak pound made UK goods cheaper abroad.

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