Phil Reporter

Bank of England freezes interest rates

The Bank of England is to keep interest rates at 0.5 percent over concerns regarding the extent to which the UK economy is to recover over the coming months. This decision, which was made by the MPC (Monetary Policy Committee, a combination of independent financial advisors and government officials), effectively means that interest rates will remain at record low levels for an extra month.

The Consumer Price Index, which measures the average price of services and goods bought by households, was at 3.2 percent last month and experts have said that inflation is expected to fall close to Bank of England’s 2 percent target. In 2009, the bank injected £200 billion into the British economy to stimulate economic growth. However, it remains open to the idea of pumping in more money into the economy in the future, provided there is a strong enough justification for it.

Economists have praised the bank’s decision, arguing that the current spending cuts would have been economically damaging in the long run, if interest rates were not kept low. The UK’s GDP growth in the second quarter of 2010 exceeded many expectations, which saw the UK Pound strengthen significantly against the US Dollar and the Euro. The data showed that the GDP grew by 1.1 percent, outstripping many other countries.

However, other economists warn that the June budget, which involved some of the toughest spending cuts in decades, would decrease individual spending power. This could mean a more sluggish recovery next year, especially after take-home pay had risen by only 0.8 percent (according to VocaLink). Chief executive of the Chartered Institute of Purchasing and Supply, David Noble, was also worried the economic recover was beginning to lost steam, pointing towards data which showed that growth in the UK’s services sector was at its lowest rate for more than a year last month. There was also strong agreement that the country’s level of inflation was unlikely to stay at its current high rate by the end of the third quarter.

Comments are closed!