The Bank of England kept interest rates at a record low of 0.5% for the 12th consecutive month on Thursday, a decision widely expected as any rise in the cost of borrowing could damage the UK’s fragile economic recovery. The bank has not pumped any more money into the economy under its quantitative easing (QE) but may have to restart its asset-buying programme, (QE), if the economic outlook deteriorates, but many analysts are predicting monetary tightening later this year. It appears that the “tensions that underlay the build-up of large world imbalances have not been resolved” and the UK’s largest export market, the euro zone economy, has stalled.
Despite the upward revision to GDP in the fourth quarter of last year, to 0.3% from an estimate of 0.1%, the economy remains weak. Businesses are still under serious pressure and the threat of a double-dip recession is more serious in the near future than risks of higher inflation.
The pound took a pounding last week and suffered its biggest one-day fall for more than a year amid the prospect of a hung Parliament, after the election mooted to be in early May this year. There are fears that this will prevent swift and decisive action being taken over Britain’s public finances. Sterling fell to under $1.50 for the first time in ten months and today closed at $1.51. Against the Euro it is only €1.11 and has remained at this level for some time, despite debt issues in Greece and Portugal putting pressure on the Euro.