Bank holds record low interest rate

3:12pm Wednesday 16th March 2011

© Press Association 2011 »

The Bank of England has refused to bow to pressure over surging inflation and held interest rates at their historic low of 0.5%.

The debate among the nine-strong Monetary Policy Committee (MPC) is likely to have been heated as new pressures on inflation emerged and recent voting evidence showed an increase in the number of policymakers backing a hike.

The borrowing rate was last changed in March 2009 but the CPI measure of inflation rose to 4% in January - well above the Bank's 2% medium-term target - and governor Mervyn King has warned it could hit 5%.

Furthermore, recent unrest in North Africa and the Middle East has driven up oil prices, which is expected to add further pressure to the cost of living.

Ian McCafferty, chief economic adviser at the CBI, said the no-change decision was unsurprising but an increase in rates is becoming more likely.

He said: "The short-term data continue to cloud the issue, but there are growing risks of inflation becoming more ingrained as firms attempt to bolster their profit margins and employees seek higher wage rises in the face of sharply increased costs of energy and commodities.

"The shifting pattern of MPC voting suggests that these risks are an increasing concern, and we continue to believe that a move away from the emergency 0.5% rate set during the financial crisis is likely in the second quarter.

"By acting early, the Bank can keep inflation expectations under control, preventing the need for more aggressive action later on."

The committee was split four ways last month as Andrew Sentance voted for a greater hike than two of his hawkish colleagues. Voting patterns for this month's meeting will be revealed in two weeks.

The majority of MPC members said they were prepared to wait for further insight into the strength of economic recovery in the first quarter of this year following shock figures which showed the UK economy declined by 0.6% in the final quarter of 2010.



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