Bank of England keeps interest rates on hold

Economists anticipated the decision to keep the base rate of interest at the historic low level of 0.5%, as it was widely expected to maintain its record low to aid the struggling economic recovery.

There were no surprises either, when it was announced that the bank would not be pumping any more money into the economy under its quantitative easing (QE) programme, at least for the time being.

The QE programme was halted last month, following £200bn of money being injected into the economy to try to stimulate growth and put the recession behind us.

Following the QE programme, the Bank has attempted to encourage commercial banks to boost lending to individuals and businesses – by buying assets.

However the full effects of the QE venture may take further time to filter fully into the economy.

Many financial experts have argued that banks have yet to increase their lending as the economy recovers.

Banks argue that customers are currently more interested in taking control of their debt management by paying down loans rather than risking further debt problems by taking out new ones.

The Bank of England must also be aware of the effects of inflation following the QE programme, which resulted in the Bank’s governor Mervyn King writing directly to chancellor Alistair Darling to explain the fastest rise in inflation for 14 months.

A letter from the governor is required if inflation levels are over one percentage point above or below the government’s 2% target.