By Marcus Leach

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.

“Given the recent mixed signals about the current strength of the economy, it is not surprising that MPC members have decided to keep interest rates on hold again”, commented Ian McCafferty, the Chief Economic Adviser of leading business organisation, the CBI (Confederation of British Industry).

With a slowdown in growth for manufacturing, construction and services, it was widely expected that the rate would be kept at the record low while recovery is still weak.

The committee was faced with a difficult choice, maintain the low interest rate to aid economic growth, or raise the rate to try and counter the high inflation figures.

Inflation currently stands at 4%, which is double the bank’s target rate. Raising rates takes demand out of the economy and slows down inflation. However, it also puts the cost of borrowing up, with fears that this could put the country back into recession.

McCafferty continued: “While the recovery continues to make progress, recent economic data show that it is very patchy across sectors, and some parts of the economy remain fragile. However, pipeline inflationary pressures have intensified, with our economic surveys showing rapid cost inflation from increased energy and commodity prices. Our view remains that the Bank is likely to move away from the emergency 0.5% rate later this year.”

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