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Rates expected to stay unchanged Rates expected to stay unchanged
(10 minutes later)
The Bank of England is expected to keep interest rates on hold later as sharp cuts in recent months have left little scope for further reductions. The Bank of England is expected to keep interest rates on hold later with sharp cuts in recent months having left little scope for further reductions.
Rates now stand at an all-time low of just 0.5% after six cuts since October last year, when they stood at 5%.Rates now stand at an all-time low of just 0.5% after six cuts since October last year, when they stood at 5%.
The Bank has already introduced other measures to boost economic activity, specifically quantitative easing, or expanding the money supply.The Bank has already introduced other measures to boost economic activity, specifically quantitative easing, or expanding the money supply.
The Bank and the government are trying to raise the economy out of recession.The Bank and the government are trying to raise the economy out of recession.
Range of policies Spending boost
Lowering interest rates - or the cost of borrowing - is an effective tool for doing just that, as repayments on mortgages and loans become far less onerous. Lowering interest rates - or the cost of borrowing - is one tool for achieving that, as repayments on mortgages and loans become far less onerous.
But with rates already so low, the Bank is being forced to look at other policies to boost the economy. It is hoped that many mortgage holders will have more money in their pockets and will start spending again, thus boosting the UK economy.
However, while low rates are good news for some mortgage holders they are not so welcome for savers, who have seen the returns paid on their deposits slashed.
And, with rates already so low, the bank is being forced to look at other policies to boost the economy.
This is why it introduced quantitative easing - buying assets such as government and corporate bonds to increase the supply of money in the economy in the hope that banks will eventually find it easier to lend to companies and individuals.This is why it introduced quantitative easing - buying assets such as government and corporate bonds to increase the supply of money in the economy in the hope that banks will eventually find it easier to lend to companies and individuals.
It has also taken large stakes in some major banks such as the Royal Bank of Scotland and the Lloyds Banking Group in order to shore up their balance sheets and encourage them to lend more money. Economic indicators
There has been much criticism of the banks for not passing on the full benefits of the rate cuts.
So far, there is little evidence that these measures have had much effect but central bankers and politicians maintain that time is needed before the full benefits are realised.
On Wednesday, the National Institute of Economic and Social Research think-tank said that the UK economy could contract for another year and may not recover until 2012.On Wednesday, the National Institute of Economic and Social Research think-tank said that the UK economy could contract for another year and may not recover until 2012.
It said that the economy has contracted by 4.2% since May 2008, and predicted a further decline of 1.5% during the first quarter of this year. It said that the economy had contracted by 4.2% since May 2008, and predicted a further decline of 1.5% during the first quarter of this year.
The latest International Monetary Fund (IMF) forecast is for a 3.8% contraction for 2009 as a whole.The latest International Monetary Fund (IMF) forecast is for a 3.8% contraction for 2009 as a whole.
Bottoming out Unemployment has also reached two million, with some analysts arguing that the figure could reach three million before the recession is over.
Unemployment has also reached two million with some analysts arguing that the figure could reach three million before the recession is over.
House prices also dropped by 1.9% in March compared with the previous month, according to the Halifax.House prices also dropped by 1.9% in March compared with the previous month, according to the Halifax.
But there are some signs that the economy may be bottoming out. However the Nationwide building society, in its house price survey, said that house prices grew 0.9% month-on-month in March, providing one indicator the economy may be bottoming out.
Manufacturing output fell by 0.9% in February, the 12th consecutive monthly fall but considerably less than the 3% fall in January. Separate figures indicated that mortgage approvals also rose in February.
Activity in the service sector also fell in March but by the slowest rate for six months. And while manufacturing output fell by 0.9% in February, the 12th consecutive monthly fall, it was by considerably less than the 3% fall in January.
Mortgage approvals also rose in February. Meanwhile, activity in the service sector also fell in March but by the slowest rate for six months.
But the overall outlook for the UK economy remains bleak, which is why the Bank of England will continue to do all it can to boost consumer spending, including keeping rates as low as possible for the foreseeable future.