Bank keeps interest rates on hold

The Bank of England's interest rate setters have kept the cost of borrowing unchanged at 0.5% for the fourth month in a row.

It added it was not planning to extend its quantitative easing scheme under which it creates money to buy bonds in order to stimulate the economy.

It will continue with its current plan to spend £125bn. Some had expected it would increase that amount.

But the move allows it to pause and assess economic data, observers said.

The Bank's Monetary Policy Committee (MPC) could have increased its quantitative easing spending by an additional £25bn without asking the Treasury.

'Overall caution'

Pegging rates at 0.5% had been widely expected.

Geoff Tresman, of Punter Southall Financial Management said that holding rates was inevitable as the economy "continued to navigate its way through the serious repercussions of the massive hike in borrowing and long term build up of public debt".

"It may appear to many that green shoots are appearing and this may prove to be the case," he added.

"But it is impossible to tell whether the dim light at the end of the tunnel is the way out or an oncoming train."

Earlier this week, the British Chambers of Commerce (BCC) business group said that the worst of the UK's recession was over, but added that talk of a recovery was premature.

Latest official data showed the UK economy contracted by 2.4% in the first three months of the year, a decline not exceeded for 51 years.

Also, UK unemployment rose to 2.261 million in the three months to April. This was the highest level since November 1996.

There has also been some stabilisation in the housing market, and while prices fell in June from May, according to the Halifax, the annual rate of decline eased from 16.3% to 15%.

Source: BBC News

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