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Will the base rate remain at 0.5% for the rest of 2011?

Will the base rate remain at 0.5% for the rest of 2011?

Savers and online accountants who have been hoping to see the Bank of England’s MPC raise interest rates sooner rather than later will be dismayed to learn that the Institute of Directors has said there is no case for rates to rise this year.

It said that it would be an unprecedented move to raise rates when the broad money supply was not experiencing double digit growth. Furthermore, a rise now could plunge the UK back into recession.

The BCC and the CBI both supported the decision to keep the base rate at its historic low 0.5% at the last MPC meeting.

David Kern, the BCC’s chief economist, said the MPC was right to keep the base rate down in order to help the fragile economic recovery and relieve some of the pressures both individuals and businesses are currently facing.

He went on to point out that the MPC is concerned about the current high rate of inflation and the prospect that it may rise further in coming months. However, it would be a major mistake to tighten policy at this stage. Increasing the base rate prematurely could damage economic growth and lead to more redundancies.

He added that the MPC could consider increasing the quantitative easing programme if the economy were to weaken any further.

The CBI’s chief economic adviser, Ian McCafferty, said the MPC was in a difficult position and will have to draw a fine balance over the coming months. However, he feels that if inflation reaches 5% by the autumn, the MPC might consider a change of policy before the year ends.

© 2011 All rights reserved. Reproduction in whole or in part without permission is prohibited.

Image: Railroad weeds by kevindooley

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