Bank of England holds interest rates at historic low of 0.5% till November


October 2014

Bank of England holds interest rates at historic low of 0.5% till November

The Bank of England (BOE) has decided to hold their base interest rate at its historic low of 0.5% for another month, after itís Monetary Policy Committee reached a majority verdict over the immediate future of the UKís borrowing costs.
Policymakers also confirmed that they had chosen to keep the value of their quantitative easing initiative at £375 million, after its continued success in improving economic growth levels this year.

Interest rates have been held at their all-time low since the spring of 2009, when they were reduced in order to reduce the financial strain of borrowing on low and middle income householdís who had been struggling due to the global recession.

Market analysts now expect the base rate to be raised to 0.75% at some point next year, as the Bank of England seem set to adhere to their previous pledge to raise borrowing costs ëgraduallyí, rather than swiftly return them to their pre-recession value.

However, the eyes of the financial world will likely be on the minutes of the MPCís voting meeting set to be released in two weeks time, which will give the latest insight into the direction policymakers are veering over the timings of the first rise. Last month saw a 7-2 split in favour of retaining rates at 0.5%, with Ian McCafferty and Martin Weale the only two policymakers advocating an immediate increase to 0.75%.

In two weeks, the Bank will reveal how members of its rate-setting committee voted on the rates decision. Last month, two members voted for a rise. The other members of the MPC, including the pivotal figure of Bank Governor Mark Carney, were opposed to raising them for another month.

To raise or not to raise; that is the question

Speculation has been rife over the timeframe in which the BOE will begin to implement rate hikes, with certain sections of the financial community forecasting a January rise and others putting it straight after the General Election in May next year.

"Overall, our central case still sees the Monetary Policy Committee raising rates next month, not least because we struggle to envisage the committee either beginning to tighten in the first few months of next year, so close to May's general election, or waiting until the summer," said Philip Shaw at Investec.

The timings of the rate hikes have been seen as important because policymakers are keen to only increase the financial strain on the incomes of UK workers when they believe they will be able to cope with doing so. With wage growth continually being outstripped by the cost of living in the UK, and the housing and energy situations of the South appearing precarious this winter, a rate rise next year has found the most support as the country waits to start feeling the real-effects of the ëbooming economyí.

In 2014 alone the UK economy has grown by 0.7% and 0.9% during the first two quarters, whilst many leading economic forecast organisations have actually predicted that Britain will have one of the fastest growing western economies by the end of this year.

Martin Beck, senior economic adviser to the EY Item Club, said: "These developments are unlikely to reverse anytime soon, so 2014 is set to pass with interest rates remaining at current rock-bottom levels.

"And while rates will probably start rising in the first quarter of 2015, the risks point to that date being pushed back further."