Amongst lots of speculation as to increased rates during 2011 this never materialised and indeed 2012 is starting off with the same low rates. This decision was widely expected as the economy’s strength continues to be in doubt, backed up by concerns in the Eurozone and weak consumer spending.

Furthermore the Bank did not announced any increase in its quantative easing (aka Asset Purchase Programme) which totals £275 billion. The current increase in the programme, back in October 2011, is expected to take until early February to complete.

External Factors

There are a lot of external factors in play at the moment amongst them:

• a sharp downturn in industrial output, announced by the Office for National Statistics in November
• Eurozone interest rates being left unchanged
• reports of some disappointing Christmas Sales
• stagnated growth in the last three months of 2011 (according to estimates from the National Institute of Economic and Social Research), with the last quarter seeing just 0.1% … just enough to avoid a recession.

Record low of Interest Rates Maintained

With the uncertainty in the global economy and ongoing debates over how the Euro zone and European Union can be rescued, this was widely expected.

It also decided to maintain the Asset Purchase Programme, otherwise known as quantitative easing,  at £275 billon. This however was modified more recently back in October where it was increased by £75 billion.

This programme is still expected to take another 2 months before it completes and is likely to be kept under close scrutiny and review.

The Bank of England announced today it’s decision by the Monetary Policy Committe, to maintain the official Bank Interest rate at 0.5%.

The Bank dropped the rate to this low level back in March 2009 amid the start of the current economic downturn and although under pressure to raise rates due to some strong infaltion figures, it has until now kept that static.

Last month it did decide however to increase the Asset Purchase Facility (also known as quantative easing) to £275 billion and the committee decided to maintain that level.

In fact the expectation is that the programme will take another three months to complete and is financed by the issuance of central bank reserves.

The Bank was widely expected to take some form of action either this month or next month after further economic data was released.

However it looks like the data for the UK economony, showing that it grew by 0.1% – less than previously thought, caused a decision this month.

“In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated,” the Bank said in a statement.

Interest Rates

The Bank also decided that it would keep the historic low interest rates at 0.5%, something at the beginning of the year many had predicted would start to increase towards the end of 2011.

The European Central Bank today also announced to maintain it’s interest rates at the relatively high levels of 1.5%. On top of this it has announced 40bn euros of emergency loans for eurozone banks.

As widely expected the Bank of England today announced it would keep interests on hol at the all time low of 0.5%.

The Bank’s Monetary Policy Committe (MPC) also decided to keep the same level of quantative easing and not extending it past £200bn.

Winners and Losers

With interest rates at an all time low, the Bank’s earlier figures showed that savers ahev lost out on £43bn due to these low rates.

However the winners are obviously the mortgage borrowers, who have gained £51bn. This leaves a postive balance overall in the economy.

Bank of England Keeps Interest Rates Low!

The Bank of England (BoE) again today decided to keep UK interest rates at their record low of 0.5%.

The Monetary Policy Committe has kept rates at this low level continuously since March 2009, and it was widely expected that it would do so again this month.

This was heavily to do with the continued subdued economy with GDP figures only showing  a tony 0.2% growth.

“Unchanged interest rates were always a nailed-on certainty”, said Howard Archer, chief UK economist at IHS Global Insight.

The Banks’ programme of quantaitative easing (or Asset Purchase Programme) was also kept at £200bn.

The overall forecast still seems to be that the Bank will increase from this record low, yet the timing is off much speculation. Some forcasters have predicted there will be no rate change until 2013.

“There is a certain amount of inflationary inertia in the UK. The Bank of England has explained it often in terms of one-off shocks, but at the end of the day these one-off shocks keep materialising, such as higher utility bills this year,” said Sean Malony a bond strategist at Nomura

The Bank of England (BoE) this week again decided to keep the bank’s interest rate at 0.5%, the historical low initiated in March 2009.

It has also decided to maintain the size of the Asset Purchase Programme, aka quantitative easing.

There has been some calls for the interest rate to rise by members of the Monetary Policy Committee over the last few months due to the pressure on the economy by increasing inflation.

However the Bank has previously indicated that it believes the inflationary pressures to be temporary and skewed by various one off factors.

It is also clear that the maintenance of such a low interest rate is helping to keep some stability within the housing market, meaning that affordability of mortgage payments is now at 28%, down from the peak of 48% in mid-2007.

For more information visit: http://www.bankofengland.co.uk/publications/news/2011/067.htm

Economists had expected the decision with recent market data highlighting the continuing concerns over the strength of the UK recrovery. This is on the back of and despite the increase in inflation to 4.5%, up 0.5% from March.

In contrast signs from the European Central Bank are that interest rates may rise there next month after being held at 1.25% last Thursday.

It is believed that the continuing high inflation rate in the UK will mean it more likely that the BoE will increase rates at some time this year. This is backed by the continued pressure on the MPC  with three members voting for a rise over the last five months.

James Knightley, economist at ING stated:

“However, with inflation likely to move above 5% in the next three to four months on the back of rising utility bills and food prices and with employment and employment intentions surveys remaining firm, we feel that the balance of probabilities favours an earlier move,”

The quantative easing or Asset Purchase Programme was also kept at £200 billion.

Bank Interest Rates held.

The Bank of England (BoE) yesterday announced it would keep interest rates at the record low of 0.5% and maintin the asset purchase scheme.

The Monetary Policy Committee has been split for a while with wide speculation that interest rates could soon rise. With UK inflation higher than the agreed target a key mechanism to help recduce this is to increase interest rates.

But this has a knock on impact to the overall economy with companies and people having to pay more for their borrowing.

Their decision was likely to have been supported by data this week that pointed to a slowdown in growth in manufacturing, construction and services.

Seperately the European Central Bank decided to hold their interest rate at 1.25% after raising it last month from 1%.

Furture interest rates

“Our view remains that the Bank is likely to move away from the emergency 0.5% rate later this year,” Ian McCafferty, the CBI’s chief economic adviser, said.

This is in line with the predictions we have previously reported upon after update meetings from Bank of England members around the country.

We will have to wait until later in the month to see how the members have voted and if there is any further movement towards increasing the base rate.

The general feedback fron the bank’s recent briefimngs though indicates that in general they do not believe rates to rise sharply, and indeed expect a gradual rise to about 3% by sometime in 2014.

There rationale for this is that the current high inflation is being caused by one off influences and once they have worked thereselves out of the figures, inflation will drop back closer to the overall target of 2%.

For more information on this rational read the post: Would you like to predict interest rates? Slow rise to 3% in 2014!