UK keeps interest rates unchanged at 0.5%

The Bank of England's Monetary Policy Committee (MPC) has kept UK interest rates on hold at a record low of 0.5 per cent, for the third year in a row, since March 2009.

Analyst had expected the rate to remain unchanged as the latest data has shown the UK economic recovery was weak.
The bank's committee decision has come despite the annual rate of inflation remaining at 4.5 per cent in May, much above the bank's target of 2 per cent.

Some members of the committee and savers would like interest rates go up in order to offset the effect of inflation. Lobby group, Save our Savers, said that the value of UK savings has eroded by £50 billion in the past year due to inflation and low interest rates.

The bank made no announcement of any increase in its programme of quantitative easing, keeping it unchanged at £200 billion. However, in October, the bank had said that it would pump another £75 billion into the economy.

The bank had to choose between a weak economy, which has slowed from the 0.5 per cent growth in the first quarter due to weak consumer spending, or to contain inflation.

In its latest forecast, The National Institute for Economic and Social Research suggests that the UK economy hardly grew in the second quarter of the year and predicts a growth rate of 0.1 per cent, which is below other recent estimates that predict a rise of 0.3 per cent.

The first official estimate for second quarter gross domestic product is scheduled to be released on 26 July.
The Office for National Statistics data released on Thursday showed a sharp downturn in industrial output - including the manufacturing sector in November 2011.

However, surveys undertaken which are yet to be released suggests that conditions have improved in December, with the latest purchasing managers' indexes indicated that the service sector had seen growth pick up in December.