Interest Rates Remain Unchanged

3 June 2009

The Bank of England have kept the cost of borrowing unchanged at 0.5%

for the third month in a row. The Bank did not announce any fresh

measures to stimulate the economy.

Last month, the Bank of England announced it would be injecting an extra

£50bn into the economy as part of its quantitative easing policy.

Policymakers are trying to gauge how the economy is faring amid tentative

signs of a recovery. The Bank is due to complete its £125bn spending on

quantitative easing in July and the the Treasury has said it can spend up

to £150bn. Under the programme, the Bank of England prints money and

uses it to buy government and corporate bonds to increase money supply

and stimulate the economy.

A closely-watched survey on the service sector released earlier this week

suggested that the recovery may be coming faster than expected.

UK house prices rose by 2.6% in May compared with April, the fastest rate

of growth since 2002, according to the latest survey by the Halifax.

But in its latest Inflation Report, the Bank of England warned that the

economic outlook was still very uncertain.

The European Central Bank also decided to keep interest rates unchanged

at 1%.

Business groups have called on the central bank to increase its £125bn quantitative easing scheme, which aims to expand the amount of money circulating in the economy.

"The positive mood in the financial markets should not lull anyone into a false sense of security," said David Kern, chief economist at the British Chambers of Commerce. I think that monetary policy will remain exceptionally loose for a prolonged period"

Roger Bootle, economic adviser to Deloitte said "Tackling the recession must remain the priority, especially with unemployment rising and firms continuing to slash investment," he added.

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