Despite Fear of Inflation Bank of England Resists Change from 0.5 per cent Base Rate

Bank of England maintains interest rate at 0.5 per cent for the 18th month in a row.

Bank of England maintains interest rate at 0.5 per cent for the 18th month in a row.

The Bank of England held its base rate at 0.5 per cent yesterday, despite ongoing fears of rising inflation.

As expected, the Monetary Policy Committee (MPC) of the Bank of England held on to the base rate of 0.5 per cent.  This rate is now going on the 18th month in a row at the record level.  The majority of economists believe the rate will go unchanged to at least the middle of year 2011.

Observers comment that this is the toughest policy choice the MPC has ever gone through.  With inflation currently at a rate of 3.2 pc, the decision to uphold such a low interest rate is at the very least a bold move.  At the risk of causing a stall in the economy though, the choice to leave the interest rate low is the right thing to do, committee members believe.

Andrew Sentance is the only member of the MPC to vote for an increase in the interest rate for the last two months.  He was expected to be the solitary voice again yesterday.

The European Central Bank or ECB, has also decided to maintain its rate at 1pc.  The president Jean-Claude Trichet said neighboring economies were in better shape than expected, having the Greek sovereign debt crisis earlier this year. 

“We are now … in a situation which is obviously better than before,” he said, and then added, “I don’t declare victory, we remain cautious.”

Inflation in Europe is 1.7pc, close to the ECB’s target of 2pc.

Howard Archer, chief economist at IHS Global Insight said: “The ECB gives every impression that it will keep interest rates down at 1pc for some considerable time to come.”

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