Bank of England holds interest rates at 0.5% until after general election

Bank Of England Building

Britain will go a whole parliament without an increase in interest rates for the first time since the immediate aftermath of the second world war, after the Bank of England left official borrowing costs on hold.

Threadneedle Street said it had left the bank rate unchanged at 0.5% following the meeting of its nine-strong monetary policy committee, extending a run that began more than six years ago when Gordon Brown was prime minister and Alistair Darling chancellor.

The last time interest rates remained unchanged for the duration of an entire full-length parliament was between July 1945 and February 1950, when Clement Attlee was in Downing Street.

That formed part of a prolonged period of low interest rates, with borrowing costs standing at 2% between 1932 and 1951 apart from a short period when they were raised to reassure financial markets at the start of the second world war.

The MPC is delaying the timing of its next meeting, with members due to make up their minds regarding interest rates on 8 May, the day after the election. It will announce its decision on 11 May.

Economists believe the recent fall in inflation to zero will mean that the period of 0.5% interest rates will continue for some time after the election.

Chris Williamson, chief economist at Markit, said: “Low inflationary pressures therefore suggest that policymakers will not feel the need to hike rates this year.”

Vicky Redwood, UK economist at Capital Economics, said rates would remain on hold until the second quarter of 2016.

“We had previously thought that the tightening labour market might prompt the MPC to raise rates once before the end of this year, and this is certainly still a risk. But, on balance, developments over the past few weeks suggest that the first rise will be delayed until next year.”

Powered by Guardian.co.ukThis article was written by Larry Elliott, for theguardian.com on Thursday 9th April 2015 13.09 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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