UK interest rates on hold… for now

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THE BANK of England has voted to leave interest rates at 0.25% despite the Fed in the US raising rates the day before.

It has also maintained government bond purchases at £435bn and corporate bond purchases at £10bn.

The decision was not however unanimous with the Monetary Policy Committee (MPC) voting 5-3 in favour of the hold. Kristen Forbes, Ian McCafferty and Michael Saunders all voted to increase rates.

Calum Bennie, savings expert, Scottish Friendly, said: “The usual prescription to deal with a bad dose of inflation, even where it has been self-induced by overindulging in quantitative easing, is to raise interest rates.

“However the decision to leave interest rates unchanged for fear of upsetting the struggling UK economy means that for the time being we have to resign ourselves to higher prices and wages that don’t keep pace. The longer this gap is left to widen the worse off people on lower incomes are likely to become as their disposable income is squeezed further and their reliance on credit grows ever stronger.”

City experts were not expecting a change in policy on Thursday but were keen to read the Bank’s views on the economy as inflation hit 2.9% this month.

Although raising interest rates to cool inflation is seen by many as a practical strategy there are fears it may end up pressuring borrowers and eroding business confidence.

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