No changes from Bank of England on rates

Thursday 05 December 2013 18.53
Bank of England keeps rates of 0.5%
Bank of England keeps rates of 0.5%

The Bank of England held interest rates at a record low once more today in spite of mounting cheer over the UK recovery.

A flurry of encouraging signs on the UK economy has fuelled expectations for growth to pick up to around 1% this quarter.

But Governor Mark Carney has already sought to allay fears that the better prospects could mean interest rates rising from their current level of 0.5% sooner than expected.

The low-interest rate policy is part of the bank's monetary stimulus in helping to nurse the UK back to health after the downturn, and also includes a quantitative easing programme (QE) injecting £375 billion sterling into the economy.

The QE drive has now been kept on hold since it was last raised in July last year as the recovery has gained traction.

Policymakers have pledged not to raise rates from the current historic low of 0.5% until the jobless rate falls to 7%, although with the jobs market improving there had been concerns that they could go up sooner than previously believed.

Mr Carney admits that the Bank's Monetary Policy Committee (MPC) expects the 7% threshold to be reached earlier than it did in August.

But he stressed recently to markets that the "forward guidance" linking interest rates to joblessness did not mean that reaching the threshold would automatically trigger a rate rise.

But he stressed recently to markets that the "forward guidance" linking interest rates to joblessness did not mean that reaching the threshold would automatically trigger a rate rise.

"We will continue to provide exceptional monetary stimulus so that British households and businesses have, for the first time in a long time, the confidence not just that the glass is half full, but that it will be filled," Mr Carney said.

Further positive reports on the economy have continued to emerge in recent days, with optimistic surveys from the manufacturing, construction and services sectors adding to hopes that output will rise to 1% in the fourth quarter from 0.8% in the previous three months.

Last week's move to cool household lending by removing the mortgage element of the Funding for Lending scheme has further reduced the likelihood of an early rate hike.

Falling inflation has also eased the pressure on the bank to lift the cost of borrowing, with the consumer prices index  dropping to 2.2% in October  - its lowest level in more than a year.

But some economists believe the bank will face a tough dilemma next year amid predictions that inflation will pick up once again.

The ECB also kept the main euro zone interest rates steady at their record lows of 0.25%.