Bank of England interest rate completes six years at record low of 0.5%

The Bank of England in London.

The Bank of England in London. - Credit: PA

Interest rates were kept at their historic low of 0.5% today as inflation’s recent weakness continues to reduce the near-term chances of an increase.

The Bank of England’s latest decision means the UK has now seen six years of rates at their current level, since they were slashed in March 2009.

Most City economists think rates will be untouched until later this year, particularly in light of uncertainty over the eurozone’s recovery.

CPI inflation stood at just 0.5% in December and is set to fall further as oil prices remain at less than half the level seen last summer.

At the last month’s meeting of the bank’s Monetary Policy Committee (MPC), two members abandoned their previous arguments for lifting the bank rate by 0.25% after voting five times to do so since last summer.

The bank has judged that there is a “roughly even chance” that inflation will dip below zero during the first half of this year.

Britain’s Gross Domestic Product (GDP) grew by an estimated 2.6% last year, though it slowed more sharply than expected to 0.5% in the final three months, providing the bank with another reason to keep rates on hold.

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The annual figure is still the best since 2007, before the recession, and indicates that the UK is likely to have been the world’s fastest-growing major economy last year.

The prospect of rates remaining on hold is more bad news for savers but appears to have ended a mini-downturn in housing market activity seen over the final months of last year.

Mortgage approvals have risen for the first time in six months and the Halifax said today that prices across the UK increased by a surprise 2% month on month to reach an average £193,130, which is the largest value in cash terms seen since February 2008.

Samuel Tombs, an economist at Capital Economics, said: “This renewed pick-up in demand has probably partly reflected the receding possibility of an imminent rise in official interest rates.

“Not only is this likely to have made borrowers more willing to take out variable-rate mortgages, but it has also led to a sharp fall in interest rates for new fixed-rate mortgages.”