UK interest rates kept at record low

Bank of England also decides not to pump more money into economy via quantitative easing.

The Bank of England has decided to keep interest rates at their record low of 0.5 per cent, the BBC reports. They have been at this level since March 2009, and analysts do not expect any rate rises soon as the economy continues to recover.

The UK economy grew by 0.2 per cent in the first three months of this year, slower than the previous quarter, when the economy grew by 0.4 per cent. The 0.2 per cent, however, is a first estimate which could be revised. The UK emerged from recession in the final quarter of last year, after six consecutive quarters of contraction.

Although the UK inflation rate rose sharply to 3.4 per cent in March, most analysts believe interests rates will remain at 0.5 per cent for the foreseeable future. "Given the dangers still facing the economy, the [Bank's] Monetary Policy Committee must persevere with expansionary policies," said David Kern, chief economist at the British Chambers of Commerce. "Any thought of raising interest rates, and withdrawing the QE stimulus, must be rejected until there is more conclusive evidence that growth is secure."

The Institute of Directors said it "made sense" to keep rates on hold, particularly in light of the political uncertainty surrounding the formation of a new government.

Last week's UK general election failed to give any party a clear majority, and the major parties are holding talks to try to form a coalition government.

All parties have said they will cut spending to tackle the budget deficit, meaning the Bank will have to keep rates low to compensate, analysts say. "I'm in no doubt that, whatever government is formed, a major fiscal squeeze looms and monetary policy will have to be kept exceptionally loose to compensate," said Roger Bootle, economic adviser to accountancy firm Deloitte.