Interest rates remain frozen at 0.5% for fourth consecutive month

As anticipated by chief economists, the Bank of England has revealed today that it will keep interest rates at the historic low of 0.5%.

The Bank of England hopes that the move will continue to encourage borrowing in a bid to retrieve the country from recession. The bank also announced that no extension to its quantitative easing strategy would be made at the current time.

Under quantitative easing, the central bank purchases financial assets such as Government and corporate bonds using money that it has created, in order to stimulate the economy. The Bank of England said that it will proceed with original plans to spend £125 billion in this way.

However, the bank’s Monetary Policy Committee (MPC) did have the option to increase quantitative easing by £25 billion without having to consult the Treasury. Some business leaders have therefore reacted angrily to the news that no extension is planned. David Kern, Chief Economist at the British Chambers of Commerce (BCC), commented:

"We disagree with the decision not to use the final £25 billion allotted to the asset purchase programme. Quantitative easing is not yet fully effective and there is a strong case for raising the proportion of private sector assets that the MPC purchases.

"It is important to significantly increase the programme’s size, so as to underpin business confidence. We urge the Chancellor to increase the ceiling for the programme by a further £50 billion, to £200 billion."