Partly Cloudy

Partly Cloudy

max temp: 11°C

min temp: 6°C

ESTD 1874 Search

Update: Interest rates stay on hold at 0.5% despite emergence of split opinion on MPC

14:24 04 September 2014

A view of the Bank of England, in the City of London.

A view of the Bank of England, in the City of London.

Interest rates were again held at 0.5% today as policymakers met for the first time since divisions appeared in their views about when to raise them.

shares

The first move by the Bank of England on rates since early 2009 is expected within months, with November or February seen as the most likely dates.

Last month, two members of the bank’s Monetary Policy Committee (MPC) argued for an increase from 0.5% to 0.75% but were outvoted by seven others including governor Mark Carney.

A rate rise would put pressure on household finances with a 0.25% hike likely to translate to an annual increase of £250 on a typical mortgage.

The likelihood of an increase before the end of the year had appeared to ebb in recent weeks as figures showed inflation dropped to 1.6% in July, while a 0.2% fall in pay, the first decline since 2009, emphasised the pressure still facing households.

At the same time, the Bank of England said it would take greater account of pay when deciding on when to raise rates. There have also been suggestions of a cooling off in the housing market boom.

But minutes of August’s MPC meeting showing the split vote caused some to believe the possibility of a rate rise in 2014 was still open.

The two dissenters, Ian McCafferty and Martin Weale, argued that despite weak pay growth, the Bank’s actions ought to anticipate its inevitable rise, adding that a rate of 0.75% would still be “extremely supportive” to the economy.

The rate rise speculation has been further fuelled by strong monthly figures from the services and construction sectors this week.

Policymakers have been considering a hike in order to rein in possible inflationary worries further down the track. But there are fears that raising rates too soon could hamper growth, with sectors such as manufacturing and construction still below pre-recession level.

The members of the MPC In favour of a rate rise believe it would help the Bank stick to its aim of making only gradual increases later.

Investec chief economist Philip Shaw said he expected a rise in November, arguing that a rise was on its way and history suggested this was unlikely to come too close to the general election in May.

He said: “There is typically a preference, if possible, to avoid monetary policy becoming a political football in an election campaign.”

In contrast with expectations for a rate rise in the UK, eurozone interest rates were today slashed to 0.05% in the latest bid to breathe new life into the continent’s moribund economy amid the threat of a deflationary spiral.

The European Central Bank (ECB), led by Mario Draghi, came under pressure to act after inflation sunk to 0.3% last month.

Growth across the 18-nation bloc had already ground to a halt in the second quarter as fears over the Ukraine crisis hit confidence.

The ECB had already cut interest rates from 0.25% to 0.15% in June but has now decided that even stronger medicine is needed, as it cut growth forecasts for this year and next.

It also cut the overnight deposit rate for lenders that hold money with it to -0.2% – a rate that had already been slashed below zero to -0.1%.

Mr Draghi said that in addition, the bank would start a new stimulus programme buying asset-backed securities.

The decision saw the euro plunge by nearly 1% against the US dollar while sterling climbed a cent against the single currency.

shares

0 comments

Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files
Comments

Please log in to leave a comment and share your views with other East Anglian Daily Times visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by East Anglian Daily Times staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique East Anglian Daily Times account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

East Anglian Daily Times Business Awards 2014 
Business of The Year winner Aspall 
Tom McGarry EDF , Barry Chevallier Guild of Aspall and Sarah Howard Chamber of Commerce

The number of entries for this year’s East Anglian Daily Times Business Awards has broken the previous record as firms line up across the categories.

Top chef James Martin at the launch of his new eatery at Stansted Airport.

Restaurants are investing in something different for their outlets at Stansted Airport.

GDP figures are out today.

The pace of Britain’s economic recovery will come into focus today with official figures expected to reveal that it slowed in the first three months of this year.

Premier Inns rapid growth story is set to continue after its owner, Whitbread, mapped out plans for as many as 900 hotels by the end of 2020.

Premier Inn’s rapid growth story is set to continue after its owner, Whitbread, mapped out plans for as many as 900 hotels by the end of 2020.

Doug Field - Executive Officer - Finance and Technology, East of England Co-op

An East Anglian store chain is celebrating a 3% rise in profits, but warned store closures could be on the cards this year as it continues to battle tough trading conditions.

left to right): Andrew Harrison, Managing Director Stansted Airport; Charlie Cornish, MAG Chief Executive; Beth Brewster, MAG Retail Director

Phase two of an £80million project to transform restaurants on offer at Stansted Airport was officially opened yesterday, amid hopes the improved offer will attract long-haul airlines to the transport hub.

TUC General Secretary Frances O'Grady.

Job insecurity and short hours contract are blighting the lives of many workers, say trade unionists.

GDP figures are out today.

Britain experienced a sharp slowdown at the start of the year as growth slipped to a worse-than-expected 0.3%, official figures showed.

BP has seen profits fall as oil prices slump.

BP reported a 20% drop in first-quarter profits today after it was hit by a sharp slump in oil and gas prices.

Bury St Edmunds Chamber Hustings event on 14 April at West Suffolk College: David Chappell (Liberal Democrat); Jo Churchill (Conservative); Colin Knight, Chair, Bury St Edmunds Chamber; Nigel George, Bury St Edmunds Board member; William Edwards (Labour); Dr Helen Geake (Green Party)

Suffolk’s business sector has been striving to ensure its voice is heard at a series of hustings in the run-up to the General Election.

Most read

Most commented

Topic pages