Interest rates at historic low for life of coalition

Trying to keep the economy stable has led to an historicaly low period for rates
Trying to keep the economy stable has led to an historicaly low period for rates

Interest rates have now been left at their emergency rate of 0.5 per cent for the entire period of the coalition Government.

The latest Bank of England decision to maintain the status quo is the last before the General Election and comes amid expectations that rates will stay on hold until next year because inflation is currently at zero and predicted to turn negative.

Rates have been at their current record low since March 2009, despite the upturn in economic fortunes.

Rate-setters have also been concerned by uncertainty ahead of next month’s poll as well as the performance of the wider economy, offsetting recent figures showing growth of 2.8 per cent last year - better than previously thought.

Other data have been mixed. Purchasing managers’ index (PMI) surveys this week indicated accelerating growth in manufacturing and services sectors last month, but construction losing momentum.

Overall, the PMI figures pointed to growth picking up to 0.7 per cent for the first quarter, up from 0.6 per cent in the last three month of last year.

But official figures for January have been less rosy, with all three main sectors - including the powerhouse services sector representing three-quarters of output - going backwards.

Meanwhile, hopes for a pick-up in pay growth have suffered a setback as wage growth has stalled.

Bank of England policymakers must try to avoid knocking the recovery off course with a rate hike, while trying to bring inflation back up to its two per cent target.