By Marcus Leach
It came as no surprise that the Bank of England's Monetary Policy Committee voted in favour of maintaining the interest rate at 0.5% today (Thursday).
The decision means that the rate has been at the historic low for thirty straight months now, with no sign of change in the immediate future.
Whilst the MPC opted to delay any potential quantitive easing (QE), it seems like it is only a matter of time before they decide for a fresh round, a decision supported by the Institute of Directors.
“No change in policy was no surprise, but we still expect an expansion in quantitative easing before the end of this year," Graeme Leach, Chief Economist at the Institute of Directors said.
“The continuing eurozone crisis, deteriorating consumer and business confidence and the weakness of the money supply mean that we are sailing close to a double-dip.
“The downside risks are considerable and for this reason the IoD is calling for an initial £50bn expansion in QE.”
Karen Barrett, chief executive of unbiased.co.uk, feels that savers will now be forced at looking at alternative ways of making their money work for them, as with the interest rate so low there is little hope of making money from savings.
“Today’s decision to keep rates at 0.5% for yet another month means that we are continuing to face a historically low rate for a record 30th month, while at the same time inflation is soaring above its target," she said.
"The impact on savers is clear — low interest rates on savings, coupled with the effect of inflation on already low returns, means that savers need to look for alternative ways to make their money work for them.
“At the same time we have a worrying 46% of mortgage borrowers who haven’t reviewed their borrowing arrangements since the base rate last moved. With mortgage rates significantly lower than just two years ago and an increasing amount of attractive deals coming onto the market at a variety of loan-to-value ranges, we would urge every mortgage holder to spend some time looking at their current borrowing arrangements."
Andries Smit of SME Discounts was not surprised by the rates being held, and believes that the rate could remain at 0.5% for at least another year.
"That the Bank left rates on hold for another month was an odds-on certainty," Mr Smit said.
"Unless inflation rises very sharply, close to double digits even, rates could remain at their current level for at least another 12 or 18 months such is the underlying weakness of the economy.
"The OECD's prognosis for the UK and economy only adds to the gloom.
"QE or no QE, the Monetary Policy Committee has become little more than a helpess bystander as economic events, domestic and overseas, unfold.
"A third of small to medium sized businesses (SMEs) we polled last month said their business was in a worse position than it was a year ago. Any hike in the Bank Rate would instantly hole many of them under the waterline."
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