Bank of England to decide on interest rates
- 00:01:30
- ITN
Bank of England to decide on interest rates
The Bank of England is set to leave interest rates unchanged after six successive months of cuts. Last month the Monetary Policy Committee (MPC) slashed borrowing costs to a record low of 0.5 per cent and embarked on unprecedented plans to boost the economy with £75 billion in new money. But the MPC is likely to wait several months before shifting rates again to see if the "medicine" works on the UK's recession-hit economy. Economist Malcolm Barr said: "Looking further forward, we continue to anticipate rates remaining at 0.5 per cent for an extended period of time - in our forecasts that means until early 2011." With further cuts unlikely due to the potential impact on banks and their willingness to lend, the focus will shift to the pace of quantitative easing (QE) - effectively printing money. The Bank - which has permission from Chancellor Alistair Darling to create up to £150 billion if necessary - will review the scale of the operation each month, but it will be difficult for rate-setters to judge the impact of QE just weeks into the process. The Bank's latest credit conditions survey, however, showed lenders indicating they would make more credit available to individuals and businesses in the coming three months. Other factors which will be weighed up by the MPC include a surprise rise in inflation during February - although this was put down to the weakness of sterling. As well as and the Consumer Prices Index, which is set to fall well below the Bank's 2 per cent target this year as recession hits demand. Although experts predict a fall in output during the first three months of 2009 of the same order as the 1.6 per cent fall seen in the final quarter of 2008, surveys from manufacturing, services and construction sectors have all signalled that the speed of the UK's slump into recession is at least slowing down. Mr Darling has admitted that he got the length of the slowdown wrong when he predicted a "short and shallow" recession in November. He now faces the prospect of downgrading growth forecasts again in the Budget later this month. IHS Global Insight economist Howard Archer is also keen to give a dose of realism to those looking hopefully for signs of recovery. He said: "While some of the latest data and survey evidence have raised hopes that the rate of decline in economic activity could be starting to moderate, the UK clearly currently remains deep in contraction territory with a return to growth still looking some way off."
ITN | April 9, 2009
