By Marcus Leach
The Bank of England (BoE) has once again decided to maintain the current interest rate at 0.5%, whilst opting against any fresh stimulus for the economy.
Despite concerns over the state of the UK economy analysts had widely predicted the news. The mood was boosted by the news that the UK service sector grew at its fastest rate for seven months.
This has raised hopes that the UK will avoid falling into recession again.
The UK's economy shrank by 0.3% in the last three months of 2012, and if it contracts during the first quarter of this year then it will be back in recession for the third time in five years.
Recent surveys have indicated that the manufacturing and construction sectors continued to contract last month and, despite the upbeat service sector survey, analysts say it will be a close call as to whether the UK avoids recession.
"Interest rates are the economic equivalent of smoke signals from the Vatican chimney. Lots of expectation that is often disappointed," David Stevenson of the online TV channel Investment Compass commented.
"Today's "steady as she goes" message from the MPC should in theory give a buy signal to investors in riskier stuff like equities.
"But we all know this monthly exercise has morphed into a bit of a charade. Central bankers in the UK and the US are determined to keep rates low to stimulate their sickly real economies - and this low interest rate regime is likely to last until at least the end of 2013 in the US, and probably well into 2014 in the UK.
"Low interest rates are designed to encourage investors that it's time to dump those cash savings accounts and take some risk by inching up their exposure to shares. Most fund managers that we talk to probably wouldn't disagree with that message.
"But there's a sting in the tail as sooner or later interest rates will have start to rise, probably first in the US. And when that does happen, the consensus in the City is that there could be blood on the carpet for equity markets as the great tap of central bank liquidity is slowly turned off.
"The real problem though will be that the usual refuge for equity investors - goverment bonds - will also probably appear poor value at that awful moment."
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