Bank set to keep interest rate low

Posted on: 04 March 2010 by Mark O'haire

Rate-setters will mark a year of rock-bottom interest rates and efforts to boost the money supply by maintaining their support for a fragile UK recovery.

Bank set to keep interest rate lowThe Bank of England's Monetary Policy Committee (MPC) is set to keep its quantitative easing (QE) programme unchanged at £200 billion at its latest policy meeting and hold interest rates at their 0.5% all-time low.

The "wait and see" stance comes after a month of mixed signals for the MPC as the UK crawls out of recession.

Figures have shown the UK growing at a faster pace than first thought - but the 0.3% advance seen in the last quarter of 2009 offers scant cause for celebration as the recession was deeper than first thought.

Recent surveys showed manufacturing and services activity picking up pace and consumer confidence at its highest level for two years, but VAT hikes and snow have hit retailers, and house prices also registered their first fall in nearly a year during February.

The MPC's inflation-watchers will also be focusing on the current weakness of the pound amid fears over a hung parliament delaying plans to tackle the UK's deficit.

The pound fell to a 10-month low against the dollar on Monday and has slumped by around 8% so far this year.

Members of the MPC have meanwhile dropped hints that more QE could be in the offing if the recovery fails to gain traction.

The impact of temporary VAT cuts, car scrappage schemes and spending brought forward to beat recession are set to fade, while the dire public finances mean there will be little scope for further giveaways.

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