Rates on hold in April

The Bank of England has kept interest rates on hold at 0.5% and announced no extension to their programme of quantitative easing.

Despite mixed reports about the progress of the UK economy in the first quarter, the Bank decided to maintain their asset purchase programme at the current size of £325bn.

It was increased to this level in February and, at their last meeting in March, two members of the Monetary Policy Committee voted to increase the programme by a further £25bn to £350bn.

We continue to believe that there will be a further round of QE during 2012.

Earlier today we saw data suggesting that manufacturing activity had fallen by 1% in February, suggesting that the UK economic remains in a febrile state.

Interest rates have been on hold at the historic low of 0.5% since March 2009, punishing savers with the average instant access savings account now paying around 1%; well below the level of price inflation.

Only borrowers with Bank Rate tracker mortgage deals, with the absence of interest rate collars, have benefited from lower interest rates to cut the cost of borrowing. Other mortgage interest rates remain high as the banks continue to rebuild their capital following the global financial crisis.

Savers and borrowers should plan for continued low interest rates, with a further round of QE likely to occur later in the year, hopefully lifting the spirits of investment markets.

Photo credit: flickr/morgacito