The Bank of England has kept interest rates on hold again, despite fears over looming inflation.
As expected, the Bank’s rate-setting Monetary Policy Committee (MPC) pegged rates at their record low of 0.5 per cent. They have now remained unchanged since March 2009 – the longest period of stable rates in the Bank’s history.
But with fears growing among economists that inflationary pressures are gaining strength, many believe a rate rise is on the cards later this year.
Food and utility costs have risen and, coupled with the recent VAT hike, are stoking inflation, which is now 1.3 percentage points above the Bank’s two per cent target. Many believe inflation will reach four per cent in the coming months, leaving the nine members of the MPC little choice but to raise rates, probably in October.
Futures markets have already priced in a strong chance of a rise in interest rates as early as May.
Ahead of today’s decision J.P. Morgan economist Allan Monks told Reuters: “For the Bank to tighten in the first half of the year, we’d need to see signs that inflation expectations are starting to move out of their recent range and reach levels that are concerning for the MPC.”
