By: Dr. Mike Campbell
The Bank of England’s Monetary Policy Committee has voted to keep the UK interest rate at 0.5% for the 19th consecutive month. The idea is that low interest rates mean that businesses and consumers can benefit from cheap loans which will feed through to stimulate economic growth.
With the UK government embarking on austerity measure which will lead to reduced public spending and lower disposable income for many households, the policy looks set to remain in force well into the New Year.
One advantage of the policy is that home owners on variable rate mortgages are seeing their monthly repayments at the lowest levels possible – mind you, credit card APRs are still totally out of whack with one major retailer boasting that their APR was “only 18%”.
The Bank of England has also decided against a new round of “quantitative easing” where new money (quite literally) is pumped into the economy in a move to improve liquidity.
On the other side of the English Channel, the European Central Bank also decided to leave Eurozone rates on hold at just 1%, for much the same reasons as the Bank of England. European rates have now been on hold for 17 months.
Jean-Claude Trichet, the president of ECB said recovery "should proceed at a moderate pace in the second half of this year with the underlying momentum remaining positive".
The Euro has seen a recovery in its value against both Sterling and the US Dollar which are returning it to the level it was at before the sovereign debt crisis of the late spring. The rate of recovery is faster against the Dollar due to weakness in the US economy which is driving the Dollar down.