9th April 2015
The Bank of England’s Monetary Policy Committee (MPC) avoided any pre-election shock today and voted to keep the cost of borrowing at 0.5% for at least another month.
March marked six years of interest rates being stuck at 0.5% as the MPC originally slashed rates to a 300-year low back in 2009 in a bid to stimulate the British economy during the height of the financial crisis.
Given the present backdrop of zero inflation, as measured by the Consumer Price Index (CPI) – the lowest on record, the Bank is under no real pressure to hike rates anytime soon.
It has already warned that inflation may temporarily slip into negative territory sometime in the spring, as a result of depressed oil and food prices.
Presently it is far from clear as to when interest rates will rise, as some commentators predict later this year, while others say they do not expect any movement until 2016.
In March, official figures showed that the UK economy grew by 2.8% in 2014, the highest rate of growth since 2006 but other numbers have been less positive with new data highlighting that Britain’s trade deficit widened in February by more than anticipated.
Howard Archer, chief UK & European economist at IHS Insight believes the odds currently favour the Bank hiking interest rates from 0.5% to 0.75% in February 2016.
He said: “Any interest rate hike could be delayed if there is prolonged political uncertainty after May’s general election and this has a dampening impact on economic activity, particularly business investment. We see interest rates rising gradually to 1.50% at the end of 2016 and to 2.50% at the end of 2017.”