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Rates expected to stay unchanged Rates expected to stay unchanged
(29 minutes later)
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. 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 introduced quantitative easing, or expanding the money supply, to help boost the economy and so far has injected £21bn into the system.The Bank has introduced quantitative easing, or expanding the money supply, to help boost the economy and so far has injected £21bn into the system.
The Bank and the government are trying to raise the economy out of recession. The Bank and the government are trying to lift the economy out of recession.
Spending boostSpending boost
Lowering interest rates - or the cost of borrowing - is one tool for achieving 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.
It is hoped that many mortgage holders will have more money in their pockets and will start spending again, thus boosting the UK 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. The Bank of England is expanding the amount of money in the system by £75bn in an attempt to boost bank lending class="" href="/1/hi/business/7924506.stm"> What is quantitative easing?
And, with rates already so low, the bank is being forced to look at other policies to boost the 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.
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. And with rates already so low, the bank is being forced to look at other policies to boost the economy.
"We expect the MPC to keep official interest rates unchanged at 0.5% today," said David Kern, chief economist at the British Chambers of Commerce. 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.
"Since quantitative easing is now the main monetary weapon in the battle against recession, it is important that the policy is communicated more clearly, and is implemented more forcefully, than has been the case so far." In the face of recession, the policy stance must remain expansionary and quantitative easing should be aggressively pursued David Kern, British Chambers of Commerce
The rate setting decision comes as the sharp fall in mortgage repayments, caused by the cuts in interest rates, saw the Retail Prices Index (RPI), which includes housing costs, fall to zero for the first time in 49 years in February. The Bank has said that it will inject £75bn into the economy in coming months, with another £75bn to hand if needed.
But David Kern, chief economist at the British Chambers of Commerce, said the measures taken in recent months "have failed to alleviate the downturn".
"In the face of recession, the policy stance must remain expansionary and quantitative easing should be aggressively pursued."
He added: "Since quantitative easing is now the main monetary weapon in the battle against recession, it is important that the policy is communicated more clearly, and is implemented more forcefully, than has been the case so far."
The rate-setting decision comes as the sharp fall in mortgage repayments, caused by the cuts in interest rates, saw the Retail Prices Index (RPI), which includes housing costs, fall to zero for the first time in 49 years in February.
However, the Consumer Prices Index (CPI) rose to an annual rate of 3.2% in February, from 3% a month earlier, still above the target of 2%.However, the Consumer Prices Index (CPI) rose to an annual rate of 3.2% in February, from 3% a month earlier, still above the target of 2%.
Economic indicatorsEconomic indicators
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 might not fully recover until 2012.
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. It said 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.
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.
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. 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 that the economy may be bottoming out.
Separate figures indicated that mortgage approvals also rose in February.Separate figures indicated that mortgage approvals also rose in February.
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.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.
Meanwhile, activity in the service sector also fell in March but by the slowest rate for six months. Meanwhile, activity in the service sector also fell in March, but by the slowest rate for six months.