Bank of England holds interest rates at 0.5% for 11th month in a row

The Bank of England has announced today decisions to keep interest rates on hold at 0.5% and to stop the asset purchase facility at £200bn.

According to the Centre for Economics and Business Research (Cebr) the announcements signal a pause in the quantitative easing policy that is likely to last until after the General Election when the path for fiscal policy becomes clearer.

Cebr added that as the recovery is still emerging and the scale of fiscal tightening after the election unclear, the MPC has adopted a ‘wait and see' approach. The economists also argued that in doing so, policymakers have bargained that the rise in inflation is a short term phenomenon and expect inflationary pressures from the sluggish recovery to be weak in the medium term.

Charles Davis, senior economist at Cebr, said: "Our view is broadly in line with the Bank of England. Monetary policy can ignore the short term spike in inflation unless there are signs that the pick up inflation is feeding through to wage and inflation expectations. We expect inflation expectations to remain anchored, although households will have to be prepared for particularly weak real disposable income growth over the next year as earnings growth hovers around record low levels."

He continued: " Moreover, in the uncertain period in the lead up to the election where fiscal policy remains in limbo, a wait and see approach is probably best. Hence, we expect interest rates and quantitative easing to remain on hold until after the election unless the bond market fears on the continent spill over into the UK. If the next government chooses to tighten fiscal policy drastically, quantitative easing could be extended."