Monetary Policy Committee keeps rates on hold
June 1, 2009
The base interest rate in the UK is to stay on hold for the first time in seven months, with the Bank of England announcing that it is leaving the rate on hold at 0.5 percent following the April Monetary Policy Committee meeting earlier this week.
The decision to keep rates on hold did not come as a surprise to most industry experts, many of whom had already predicted that with the interest rate already at the lowest level in the central bank’s three hundred and fifteen year history a further cut was unlikely.
Officials have said that the bank is now focussing on trying to boost the economy through quantative easing rather than through continued base rate cuts, and that the base rate is now likely to stay on hold at 0.5 percent for the rest of this year and into next year. Between October and March the Bank of England has cut rates every month, taking the base rate from 5 percent in October to just 0.5 percent by March.
The Bank of England and the Treasury is now looking at quantative easing which will involve buying assets such as government bonds and corporate bonds to try and pump more money into the economy. Billions have already been ploughed into the economy, and in total the government has said that it has up to £150 billion put aside to use should the need arise.
An official from the CBI said: “It is too early to judge quite how quickly this will begin to affect the broader economy. But the first tentative signs of the impact on gilt yields, corporate spreads and commercial paper issue have been encouraging.”
An official from the Council of Mortgage Lenders said: “There are a number of institutions who are going to make significant commitments to lend money to both to businesses and for home ownership. But what we have also got is a market where there is a large number of lenders who are not as active, such as building societies and specialist lenders.”
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