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Bank of England holds interest rates at 0.5% until after general election Bank of England holds interest rates at 0.5% until after general election
(about 3 hours later)
Britain will go a whole parliament without an increase in interest rates for the first time since the immediate aftermath of the second world war, after the Bank of England left official borrowing costs on hold.Britain will go a whole parliament without an increase in interest rates for the first time since the immediate aftermath of the second world war, after the Bank of England left official borrowing costs on hold.
Threadneedle Street said it had left the bank rate unchanged at 0.5% following the meeting of its nine-strong monetary policy committee, extending a run that began more than six years ago when Gordon Brown was prime minister and Alistair Darling chancellor.Threadneedle Street said it had left the bank rate unchanged at 0.5% following the meeting of its nine-strong monetary policy committee, extending a run that began more than six years ago when Gordon Brown was prime minister and Alistair Darling chancellor.
Related: From MacDonald to Cameron: UK interest rates and prime ministersRelated: From MacDonald to Cameron: UK interest rates and prime ministers
The last time interest rates remained unchanged for the duration of an entire full-length parliament was between July 1945 and February 1950, when Clement Attlee was in Downing Street.The last time interest rates remained unchanged for the duration of an entire full-length parliament was between July 1945 and February 1950, when Clement Attlee was in Downing Street.
That formed part of a prolonged period of low interest rates, with borrowing costs standing at 2% between 1932 and 1951 apart from a short period when they were raised to reassure financial markets at the start of the second world war. That formed part of a prolonged period of low interest rates, with borrowing costs standing at 2% between 1932 and 1951, apart from a short period when they were raised to reassure financial markets at the start of the second world war.
But in the history of the Bank of England, which stretches back to 1694, interest rates have never been lower than they have been consistently since March 2009. Borrowing costs were cut from 5% to 0.5% in the months following the collapse of Lehman Brothers in September 2008, the pivotal moment of the global financial crisis.
The MPC is delaying the timing of its next meeting, with members due to make up their minds regarding interest rates on 8 May, the day after the election. It will announce its decision on 11 May.The MPC is delaying the timing of its next meeting, with members due to make up their minds regarding interest rates on 8 May, the day after the election. It will announce its decision on 11 May.
Economists believe the recent fall in inflation to zero will mean that the period of 0.5% interest rates will continue for some time after the election. Although the economy has been growing steadily since the start of 2013, the lack of any cost pressures has forced financial markets to push back their forecasts of when borrowing costs will be raised.
Sharply declining oil prices have led to a fresh fall in inflation, and the City now believes the period of 0.5% interest rates will continue for some time after the election.
There is a possibility that the next set of inflation figures, due out next week, will show that the cost of living in March was lower than it was a year earlier. The MPC will have known the inflation figure before making Thursday’s decision.
Chris Williamson, chief economist at Markit, said: “Low inflationary pressures therefore suggest that policymakers will not feel the need to hike rates this year.”Chris Williamson, chief economist at Markit, said: “Low inflationary pressures therefore suggest that policymakers will not feel the need to hike rates this year.”
Vicky Redwood, UK economist at Capital Economics, said rates would remain on hold until the second quarter of 2016.Vicky Redwood, UK economist at Capital Economics, said rates would remain on hold until the second quarter of 2016.
“We had previously thought that the tightening labour market might prompt the MPC to raise rates once before the end of this year, and this is certainly still a risk. But, on balance, developments over the past few weeks suggest that the first rise will be delayed until next year.”“We had previously thought that the tightening labour market might prompt the MPC to raise rates once before the end of this year, and this is certainly still a risk. But, on balance, developments over the past few weeks suggest that the first rise will be delayed until next year.”