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UK interest rates held at 0.5%

Published: 6 May 2011
UK interest rates have been held at 0.5% by the Bank of England's Monetary Policy Committee (MPC).
UK interest rates held at 0.5%
The committee has also maintained the current level of quantitative easing.

Last week the Office of National Statistics reported that the UK economy grew 0.5% in the first quarter of 2011, after contracting by 0.5% in the fourth quarter of 2010.

But some sectors of the economy are still struggling, with construction falling sharply by 4.7%.

The decision to hold interest rates at the record low of 0.5% comes despite the Consumer Price Index showing annual inflation of 4% in March - double the Bank's 2% target rate.

In response to the MPC's announcement, Ian McCafferty, chief economic advisor of the Confederation of British Industry, said: "Given the recent mixed signals about the current strength of the economy, it is not surprising that MPC members have decided to keep interest rates on hold again.

"While the recovery continues to make progress, recent economic data show that it is very patchy across sectors, and some parts of the economy remain fragile. However, pipeline inflationary pressures have intensified, with our economic surveys showing rapid cost inflation from increased energy and commodity prices. Our view remains that the Bank is likely to move away from the emergency 0.5% later this year."

The British Chambers of Commerce said UK businesses would welcome the MPC's decision.

BCC chief economist David Kern said: "Inflation, though well above target, saw a fall to 4% in March, and combined with subdued wage pressures, the arguments for an increase in rates have weakened considerably in recent weeks."

He added: "At a time when the Government is tightening fiscal policy through its deficit-cutting programme, premature rate increases could have a severe impact on growth and jobs. In the face of major global and domestic uncertainties, we believe the MPC should keep interest rates on hold over the next few months, and avoid taking any action that may risk derailing the recovery."


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