Page last updated at 15:01 GMT, Thursday, 8 April 2010 16:01 UK

UK interest rates kept on hold at 0.5%

Bank of England
The decision to freeze rates had been widely expected

UK interest rates have been kept on hold at the record low of 0.5%, after the Bank of England's latest meeting.

The Bank also decided not to pump any more money into the UK economy under its policy of quantitative easing (QE).

Interest rates have now been at 0.5% since March 2009, and analysts do not expect any rate rises soon while the economy continues its recovery.

The UK emerged from recession in the final quarter of last year, after six consecutive quarters of contraction.

The latest official figures show that the economy grew by 0.4% in the last three months of 2009, and recent surveys have indicated that the economy has continued to grow.

Earlier on Thursday, figures from the Office for National Statistics showed that UK manufacturing output rose by 1.3% in February, after a 1% drop in January when output was hit by the snowy weather.

Separately, the latest growth estimate from the National Institute of Economic and Social Research (NIESR) said that the UK economy grew by 0.4% in the first three months of the year.

'Fragile' recovery

On Wednesday, the OECD predicted that the UK's economic growth in the early part of this year would outpace other major economies.

Also on Wednesday, the British Chambers of Commerce (BCC) said its latest survey suggested that the UK economy had grown during the first quarter of this year, but it warned that the recovery was weak and there remained risks of setbacks in the future.

The current super-easy stance of policy is... still appropriate
Philip Shaw, Investec

Following the decision to keep interest rates on hold, the BCC repeated its warning that the recovery remained "fragile".

"We expected and support the monetary policy committee's (MPC) decision to continue with a holding approach. But, it should consider new techniques aimed at improving the effectiveness of the quantitative easing programme," said BCC chief economist David Kern.

"Given the dangers still facing the economy, it is important that the MPC perseveres with an expansionary strategy. Threats of a double-dip recession remain more serious in the near future than risks of higher inflation."

Other business groups also welcomed the Bank's decision.

"The decision to hold rates and asset purchase programme was expected given the economic and electoral uncertainty," said Lee Hopley, chief economist at manufacturers' body the EEF.

"However, the big economic questions have still to be addressed and the MPC's stance is right until those have been answered."

Inflation watch

The decision to keep rates and the QE programme on hold had been widely expected by analysts, given the current state of the economy and with the general election campaign now underway.

"With the recovery unfolding gradually there seems little need for additional QE, and it remains too early to start tightening," said Philip Shaw at Investec.

"The current super-easy stance of policy is therefore still appropriate."

Under QE, the Bank has pumped £200bn into the economy by buying assets such as government bonds, in an attempt to boost lending by commercial banks.

The minutes of the last meeting of the Bank's MPC showed that some members had raised concerns over possible inflationary pressures, given the weakness of the pound and with economic growth picking up pace.

However, the last set of inflation figures showed CPI inflation falling to 3% in February, from 3.5% the month before. The government's target for inflation is 2%.



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