The Bank of Engand's monetary policy committee (MPC) has voted to keep interest rates at 0.5 per cent for another month, as we head into the third year running with no change. It last moved on 5 March 2009, when rates were cut by 0.5 per cent down from 1 per cent.
That fall was just the last in a precipitous decline, as the Bank tried desperately to counter the effects of the global financial crisis. One of the more pernicious effects of the crash is what is known as the paradox of thrift; a weak economy leads to people saving more and spending less, which weakens the economy still further. By slashing interest rates by four per cent in just five months, the Bank was hoping to counter that effect.
Part of their problem is that, as the FT writes, the Bank of England, although controlling the official rates, has little effect on the market forces which lead to consumer-facing charges. This is made all the more obvious by the timing of today's announcement:
Halifax, the UK’s biggest mortgage lender, wrote to customers earlier this week to notify them that it is raising its standard variable rate on mortgages, while loans marketed under two brands run by Royal Bank of Scotland have also raised rates. Rates on some mortgage loans offered by Santander and by the Bank of Ireland have also seen rates rise, with lenders citing the rise in their own cost of funds.
The MPC also voted to continue with its quantitative easing program as planned, injecting a total of £325bn into the economy through the purchase of central bank assets.
Commenting on the decision, the chief economic adviser of the CBI, Ian McCafferty, said:
This decision was expected as the current round of asset purchases is set to run until May.
Since the MPC has been signalling that the current policy stance is broadly appropriate, it appears that the economic climate would have to deteriorate to prompt a further extension of QE.
Nevertheless, with economic conditions fragile and the level of uncertainty high, monetary policy decisions are still likely to be finely-balanced.