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Bank Of England Keeps Rates On Hold

UKInterestRate 040915

The Bank of England kept its key rate unchanged at a historic low, as widely expected, amid fears that the threat of deflation looms ahead of the general election in May.

The nine-member Monetary Policy Committee, led by Governor Mark Carney, decided to retain the key bank rate at 0.50 percent. The rate has been at the current 0.50 percent since March 2009.

The size of the quantitative easing program was also maintained at GBP 375 billion. The quantitative easing was first introduced at the March 2009 meeting.

The country heads for a poll on May 7. The U.K. interest rate has been steady at 0.50 percent through out the five-year term of Prime Minister David Cameron.

Vicky Redwood, chief UK economist at Capital Economics, said the recent rise in the pound, weakening in the inflation outlook, softer US news and sharper planned government spending cuts suggest that interest rates will rise even more gradually than previously expected.

Inflation fell to zero in February for the first time on record on sharp declines in fuel and food prices. Low inflation provides consumers with additional spending power that in turn would underpin economic growth.

Policymaker Andrew Haldane recently said the bank may be forced to cut its rate further from the current record low of 0.50 percent. But, Carney said the next move of the central bank will most likely be a hike in interest rate.

The bank is set to release the minutes of the latest policy meeting on April 22.

Any interest rate hike could be delayed if there is prolonged political uncertainty after May's general election and this has a dampening impact on economic activity, particularly business investment, IHS Global Insight's Chief UK Economist Howard Archer said.

The results of the recent surveys have been mixed. According to the Purchasing Managers' survey, the dominant service sector expanded at the fastest pace in seven months in March as improving confidence cushioned new orders.

The Quarterly Economic Survey from the British Chambers of Commerce today showed that both manufacturing and services balances weakened in the first quarter. But it follows very strong findings in the fourth quarter.

David Kern, chief economist of the BCC, said the recovery remains unbalanced with growth too reliant on consumer spending and the current account deficit at unsustainable level.

"As the general election approaches support for growth must be at the heart of the debate, with a much needed focus on boosting exports and business investment," John Longworth, Director General of the BCC said.

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