Cost of borrowing unchanged

Mervyn King, governor of the Bank of England
Mervyn King, governor of the Bank of England

by Trevor Sturgess

The cost of borrowing is to stay the same after the Bank of England today held the base rate at 0.5 per cent for the third month in a row.

The decision was made amid the first signs of improvement in the economic situation.

The decision is good news for borrowers, but disappointing for savers who are seeing the value of their investments erode steadily because in many cases interest rates are well below the rate of inflation.

People on fixed incomes, especially pensioners, will take no comfort from the Bank’s decision to hold rates.

The Bank of England’s Monetary Policy Committee also voted to continue with its programme of buying government and corporate assets – so-called quantitative easing, or printing money - totalling £125bn.

The Bank said the Committee expects that the programme would take another two months to complete but did not rule out increasing the sums available. "The scale of the programme will be kept under review," it said.

The base rate was reduced from one per cent to 0.5 per cent in March. Some experts predict that there will be no change for the rest of the year. The next move is likely to be up.

, the employers’ organisation, said: "With the quantitative easing programme now in its fourth month, the level of interest rates is not currently the main concern of the MPC.Commenting on the decision, Ian McCafferty, chief economic adviser to the

"There are some encouraging, if tentative, signs that the quantitative easing programme is reducing the downside risk to the economy, but monetary and lending conditions remain fragile. The Bank is likely to need to continue to use the quantitative easing tool in coming months."

Recent hopeful signs of recovery include a surprise return to growth by the service sector, an increase in consumer confidence in a Nationwide survey, and a CBI survey that found banks were gradually loosening their pursestrings.

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