Economy: Bank of England leaves rates on hold as pace of recovery slows

The Bank of England in London.

The Bank of England in London. - Credit: PA

The Bank of England left interest rates on hold at 0.5% today amid increasing concerns that the recovery is slowing.

Bank governor Mark Carney has indicated that the upturn means the time for an increase is nearing after more than five years at which the cost of borrowing has been held at a historic low.

But the British Chambers of Commerce (BCC) today published figures suggesting the pace of growth had dropped off in the third quarter, warning this may be the “first alarm bell” for the economy.

It found expansion in manufacturing and exports had tailed off sharply during the period, adding to data last week that suggested the recovery was “losing its legs”.

The inflation rate of 1.5%, which is likely to come under further downward pressure from the supermarket price war, has further eased any pressure for an immediate rate rise by the Bank.

Meanwhile figures from the housing market suggest its surge appears to be cooling, with Halifax data showing price increases slowing and a separate report last week indicating a fall in house prices next year.

The Bank of England decision comes a day after minutes from the US Federal Reserve’s latest policy meeting indicated that America’s central bank would keep interest rates low.

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In the UK, interest rates are widely expected to rise next February, though some analysts warn a first increase could come as early as next month, to coincide with the Bank’s latest economic projections in its quarterly inflation report.

Two members of the rate-setting Monetary Policy Committee (MPC) voted for a 0.25% increase in August and maintained their stance in September, but until now have been unable to persuade any other members of the nine-member body to join them. Details of the voting at today’s meeting will be published later this month.

The MPC is looking for signs of improving wages before a hike - but though this has yet to materialise, the so-called “hawks” on the committee argue that interest rate policy ought to be anticipating a sharp increase in pay.

Gross domestic product (GDP) growth accelerated to 0.9% in the second quarter but there are predictions that this will slow over the second half of 2014.

However, recent data revisions by the Office for National Statistics (ONS) showed that GDP was now 6.6%, or £27.8 billion, bigger than previously thought, in current prices.

The figures revealed that the economy surpassed its pre-crisis peak much earlier than previously thought and was now 2.7% ahead of its level at the start of 2008.