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Interest rates held at 0.5 per cent

The Bank of Englandís Monetary Policy Committee voted today to hold rates at 0.5%.



Sarah Davidson, 8 July, 2010

It also decided to leave its quantitative easing programme of £200 billion asset purchases financed by the issuance of central bank reserves unchanged.

Last month saw MPC member Andrew Sentance as a lone voice voting for a rise in rates.

Christina Weisz, director, foreign exchange specialists Currency Solutions, said:"The latest decision to keep rates on hold is less important than the minutes due out later this month, which could give a first clear indication of where Bank Rate is headed.

"In June, Andrew Sentance broke ranks and called for the first increase in interest rates since August 2008, and this will have doubtless led to a heated debate and potentially further dissension at the MPC.

"The committee is between a rock and a hard place. Increasing Bank Rate too soon could cripple the UK's tentative growth and potentially lead to a double-dip recession, whereas a lack of decisive action could see inflation spiral out of control, which could be equally damaging to the economy.

ďWhile a weaker pound has been positive for exporters, companies importing or buying overseas assets have been on the back foot for the past 18 months. However, if the minutes show increased hawkishness, we are likely to see sterling strengthen. What is certain is that the minutes will have a great impact on volatility."

Jonathan Samuels, CEO at bridging finance provider Drawbridge Finance, said: "Even when rates do rise, we expect the percentage increases to be incremental and this, coupled with the fact the market has already begun to price them in, is unlikely to put the property market into reverse.

"Higher rates will naturally add to the headwinds facing borrowers and the property market but at the same time they are a necessary evil, a key step back to a more normal functioning of the economy and lower inflation.

"The important thing is that the up-cycle, when it does commence, is managed smoothly to avoid shocks and enable the economy, markets and borrowers to adjust."




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