Bank of England’s Decision to Keep Rate at 0.5% ‘No Surprise’

May 14, 2012 /

There is nothing surprising in Bank of England’s decision to keep its interest rate at the all-time low 0.5% until 2015, according to an economist.

Commenting on the decision from the Bank of England Monetary Policy Committee to maintain the Bank Rate at 0.5% and to maintain the asset purchase programme at £325 billion, KPMG Chief Economist, Andrew Smith, said: “This was no great surprise – after all with conflicting evidence, the wisest course of action is often to do nothing. The Committee faced a tough dilemma with GDP coming in weaker than expected and inflation higher.

Bank of England’s decision to keep the base rate at 0.5 percent for another three years has crippled the already cash-strapped savers, analysts said.

In addition to the rock-bottom rate, the bank has also kept its quantitative easing programme at £325 billion after it injected £50 billion into the economy in April 2012.

“Confirmation that the UK economy has returned to recession would have encouraged consideration of further stimulus, but with inflation not falling as fast or as far as previously hoped, the MPC has erred on the side of caution,” Smith said.

“QE is no silver bullet, but the probability of continued weak growth (at best) and the expectation that inflation will resume its downward trend again shortly, is likely to lead the Committee to conclude that more stimulus is worth a shot, and sooner rather than later,” he added.

Although the Bank’s Governor, Sir Mervyn King, expressed his sympathy for savers, he said the stimulus measures are necessary needed to alleviate the economy.

Meanwhile, the Bank of Ireland, one of Britain’s top ten lenders, has increased its mortgage costs by around £1,500 per year for their 100,000 customers. Currently, it charges 2.99 percent on its standard variable rate mortgages, which will be raised in stages to 4.49 percent by September this year.

 

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