Bank of England Interest Rates

 

 

Bank of England interest rates are set with the goal of keeping inflation levels low and maintaining financial stability in the economy. The central bank’s monetary policy committee, in its latest meeting, has decided to maintain for the seventh consecutive month, the interest rates in the UK at a record low of 0.5%, taking into account the weak nature of the economic recovery.[br]

 

Changes in Bank of England Interest Rates

Bank of England interest rates have been reduced from a high of 5.50% in December 2007 to 0.50% in March 2009 through gradual cuts introduced in the wake of the global recession and the growing turmoil in the financial markets. The sharpest cut of 1.50% was announced in November 2008. UK interest rates are scheduled to be reviewed again in November 2009.

 

A change in the Bank of England interest rate affects the whole range of interest rates set by the banks, financial institutions and other organizations for their depositors and borrowers. Changes of Bank of England interest rates also affect the exchange rates and the price of bonds and shares.[br]

 

Bank of England Interest Rates and Inflation

Interest rates influence spending and saving by the general public, besides the price paid for the goods and services. The low level of inflation in turn helps to maintain a stable economy. The Bank of England has set a CPI inflation target of 2% and introduces changes in the UK interest rates to ensure that the inflation level can be rectified within a reasonable time and without creating any undue instability in the economy.

 

Although a recovery is visible in the UK and the CPI inflation level has fallen to a five-year low of 1.1% in September 2009, the Bank of England interest rates have been maintained at a low of 0.5%. This is because rising commodity prices and the increase in VAT are expected to push up the inflation level in the coming months. Bank of England’s Governor, Mervyn King, has already indicated that UK interest rates are unlikely to be raised in the next few months to allow the current economic recovery to gain strength and spread to all segments.