Bank of England indicates interest rates will remain low

Since March of 2009 the base interest rate in the UK has stood at its lowest level in the history of the Bank of England, which spans over three centuries, and earlier this month the central bank announced that the base rate would remain at its record low of just 0.5 percent.

Whilst this low rate of interest has been welcomed by consumers and various business and industry groups there were many industry officials that believed that the soaring rate of inflation would mean that the base rate would soon have to be increased.

However, the governor of the Bank of England, Mervyn King, has recently said that whilst the rate of inflation is currently way above the government’s 2 percent target, currently standing at 3.4 percent, he expected it to fall next year and remain within target over the next couple of years. He added, however, that it was likely to remain above target for the remainder of this year.

Reports have suggested that Mr King’s comments indicate that the base interest rate could remain low for some time to come, as his comments have removed the pressure to increase the base interest rate to try and bring inflation under control.

Mr King said that the Monetary Policy Committee would have to look at tightening policy at some point, and this could involve either increasing the bank rate or selling assets – a decision that would be made by the MPC when the time came.

Mr King stated: ‘If we were to tighten policy, which at some point undoubtedly we will have to do, we can either raise the bank rate which will have an immediate effect on the very short term structure of interest rates or we can sell assets which will start to impact further down the yield curve. The committee at the time will make a judgement as to the balance between those two.’