UK Interest Rates to Stay at 0.5%, Bank of England

The Bank of England has unanimously agreed to keep the UK interest rates at a record low of 0.5 percent. The rates will be effective for the next one month. At the same time, the BoE also decided to leave the Bank’s economic stimulus program, commonly referred to as the quantitative easing un-interfered with at £375bn. This comes in the wake of BoE governor, Mark Carney, comments last month indicating on the possibilities of the rates going up towards the end of this year.

While speaking last month, Mr. Carney said “we expect that eventual increases in Bank rate will be gradual and limited”. He had indicated that the rates would hit what he termed as a “new normal” of about 2.5% by 2017.

“Even if the Bank of England does start edging interest rates up before the end of 2014, we still expect them to only reach 1.25% by the end of 2015, 2.0% by the end of 2016 and 3.0% by the end of 2017,” said chief UK and European economist Howard Archer, at IHS Global Insight.

Howard Archer also added that there was still some doubt as to whether the UK interest rates would go up towards the end of this year or early next year, 2015. Any increase, however, is expected to be very minimal.

A good decision

According to the British Chambers of Commerce’s chief economist David Kern, the Bank of England policy Committee made a good judgment of letting the quantitative easing unchanged and the rates at a record low of 0.5 percent.

“The [Bank’s Monetary Policy Committee] has made the right decision to keep interest rates and quantitative easing on hold,” David said.  “To sustain business confidence, the MPC must strive to deliver a more clear and consistent message on the future path of interest rates. The risks from raising rates prematurely are much greater than the risks of waiting a little longer.” He added.

Statistics show that UK economy grew by 0.8 percent in the first quarter of this year for the fifth time in a row.

Falling unemployment rates

The rate of unemployment is also on the downhill trend falling to 6.6 percent during the first three months of 2014. However, there is reportedly some little pressure to increase the rates in order to help check the prices. In May this year, UK inflation rates fell by 0.3 percent to 1.5 percent. Records show that UK interest rates have stagnated at 0.5 percent since 2009.

 

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