The Bank of England (BoE) are to keep interest rates on hold this Thursday for an amazing 28th month in a row amid further signs that the UK’s economic recovery is faltering.
When the Bank’s Monetary Policy Committee (MPC) met a month ago, it left interest rates at their record low of 0.5% because of worries about the fragile nature of the economy.
Since then, there have been further signs of a slowdown in growth, after surveys revealed that activity in the manufacturing sector in June slumped to a 21 month low and consumer confidence showed its biggest fall since January.
Many economists now do not expect a rise in rates until 2012 despite inflation having remained at 4.5% in May, double the BoE’s 2% target.
One of the main worries for the MPC is the decline in consumer spending, as nervous households delay all but essential purchases because they fear for their jobs, while their wages are failing to keep pace with rising prices.
Even with the revelations that recent economic data had been weak, there was renewed talk among the MPC members about the economy needing to be boosted by a second round of quantitative easing.
Howard Archer, chief economist at IHS Global Insight, said: ‘We now expect the Bank to hold off from raising interest rates until the second quarter of 2012. We suspect that most MPC members will maintain the view for many more months to come that higher interest rates are an extra handicap that the fragile UK economy could do without.”
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