UK interest rates kept on hold

The Bank of England sat on its hands on Thursday, offering some respite for cash-strapped households by leaving interest rates unchanged again. As expected, the Bank's monetary policy committee left its benchmark rate at a record low of 0.5% for the 27th month in a row. It also left its £200bn quantitative easing programme unchanged. It was the first meeting for new MPC member Ben Broadbent, a former Goldman Sachs economist. He has replaced arch inflation hawk Andrew Sentance, who has been vocal about his belief that a rise in interest rates must happen imminently. Minutes of the meeting will be released in a fortnight, and will show how the nine members of the committee voted. Nida Ali, economic adviser to the Ernst & Young Item Club, believes the two remaining hawks on the committee – Martin Weale and Spencer Dale – may have lost their appetite for a rate rise. "With GDP in the second quarter of this year likely to disappoint, we wouldn't be surprised if this month's minutes revealed some of the hawks retreating from their vote of a quarter point rise in interest rates," said Ali. City economists have put back the likely date for the first increase to this autumn, but many think it won't happen until next year. A November rate rise is seen as a 60% probability, while markets are not fully pricing in a rate rise until next April. Bank governor Mervyn King ruled out an early interest rate rise last month even as inflation hit 4.5%, far above the Bank's 2% target. He still expects inflation to slide back towards the target from next year, and expressed concern about high unemployment and weak growth, noting that economic output was still 4% below its level at the start of the recession in 2008. Household budgets are being squeezed from all sides, with real disposable incomes falling, food and petrol prices soaring and another round of utility bill rises looming after Scottish Power raised its gas and electricity tariffs on Tuesday. The prospect of low interest rates for some time to come is benefiting borrowers who have seen the average cost of a two-year fixed rate mortgage falling to 4.41%, its lowest level since the beginning of the year. But it spells bad news for savers, who are suffering from low returns on their money, at a time when high inflation is eroding the value of their deposits.