By Max Clarke
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.
The news follows pleas from the business community to maintain the historic 0.5% low for a 23rd consecutive month.
With inflation forecast to rise to as much as 5% this year- far ahead of the Bank's 2% target, it is likely that the MPC will decide to raise interest rates in the near future, though doing so prematurely would likely have a deleterious effect on Britain's struggling SMEs.
Responding to the Bank's decision, Ian McCafferty, CBI Chief Economic Adviser, said:
“This announcement to keep rates the same is not a surprise, but with more MPC members showing their concerns about inflationary pressures, the Bank is in the process of shifting its stance.
“Looking beyond the recent surprising GDP data, the CBI still predicts growth in 2011, albeit modest, but recent indicators suggest that the inflation outlook has worsened.
“We expect the Bank to start preparing the ground for a gradual normalisation of monetary policy around the second quarter of the year.”
The Committee’s latest inflation and output projections will appear in the Inflation Report to be published at 10.30am on Wednesday 16 February.
The minutes of the meeting will be published at 9.30am on Wednesday 23 February.