Bank of England again holds interest rate at record low of 0.5%

The Bank of England in the City of London.

The Bank of England in the City of London. - Credit: PA

Interest rates were left on hold today with low inflation and concerns about the economy holding off any imminent threat of a hike.

The Bank of England’s decision after its first monetary policy meeting of the year means the UK is heading for six years of rates at the historic low of 0.5% after they were slashed in March 2009.

Inflation is at a 12-year low of 1% and expected to fall further with the slide in oil prices, meaning experts see little reason for an increase in the cost of borrowing.

The expected continued drop in the Consumer Price Index (CPI) measure of inflation will mean Bank of England governor Mark Carney having to write to Chancellor George Osborne to explain why it is more than 1% off its 2% target.

Policy-makers will not want to see the UK edging too close to negative inflation of the kind that has taken hold in the eurozone, threatening a damaging deflationary spiral in which consumers hold off purchases as prices head lower.

The bank’s monetary policy committee (MPC) is also likely to be concerned about a slowdown in the pace of the recovery.

Latest survey data from December pointed to fourth-quarter gross domestic product (GDP) growth of 0.5%, down from 0.7% in the previous period.

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Official figures last month showed the recovery during 2014 was slower than previously thought, with GDP in the third quarter 2.6% ahead on the same period in 2013, down from an earlier estimate of 3%.

The figures also showed the UK was increasingly reliant on household spending, damaging hopes for a rebalancing of the economy as business investment shrank.

Experts say uncertainty surrounding May’s General Election adds to reasons for the MPC to hold fire.