The Bank of England’s Monetary Policy Committee has voted to keep the official
bank interest rate at 0.5%.
The committee also voted to maintain quantative easing at £200 billion.
The last bank rate change was a cut of 0.5% from 1% to 0.5% in March 2009
The bank’s decision to keep rates unchanged was eased by news that food price
inflation – one of the drivers of soaring UK price rises over recent months – fell to
4.0% in March from 4.5% in February.
Non-food inflation slowed marginally to 1.5% from 1.6% in February.
The fall is attributed to retailers swallowing price rises from suppliers and
running cut-price promotions.
The next official inflation figures are due on April 12.
Stephen Robertson, British Retail Consortium Director General, said: “Global
commodities are exerting considerable upward pressure on retailers’ costs, but
a greater intensity of promotions has led to a fall in year-on-year food inflation
which will come as a great relief to hard-pressed families.
“Over the shorter term, food was actually cheaper in March than February. It’s
a clear demonstration of competition in the retail sector keeping costs down for
shoppers.
“The proportion of groceries going through the tills on promotion has reached
a new all-time high of 40%. The consistently low rate of inflation for non-food
goods shows retailers are still absorbing much of the VAT rise themselves.
“Overall shop price inflation is well below the wider Consumer Price Index,
which is running at 4.4%. The rise in overall inflation is not coming from the high
street but is being driven by rising fuel prices and escalating utility bills.”
Despite today’s decision not to raise rates, many financial institutions are
expecting a modest upward move later this year.
Barry Naisbitt, Chief Economist at banking giant Santander, said: “With three
Monetary Policy Committee members voting to raise rates last month and
inflation climbing to 4.4%, today’s decision to hold rates is likely to have been
another tight call.
“Given the projections in February’s inflation report, markets are expecting an
increase in rates by mid year unless the economic data shows that activity has
been weaker than anticipated. We’ll know the details of today’s vote and the
views behind it in a couple of weeks when the minutes are published and this
may give a clearer guide.”
