Interest rates unchanged for 23rd month

UK interest rates have been left unchanged again this month at the record 0.5 per cent level.

The meeting of the Bank of England’s Monetary Policy Committee is likely to have been fraught and the vote close as the board’s opinion has been divided over how soon to raise rates.

This is the 23rd consecutive month without a change in the rates.

The Bank is under pressure to raise rates to combat rising inflation, which currently stands at about 3.4 per cent.

Investec economists anticipate the consumer price index measurement of inflation to reach 4.3 per cent this week.

Economists had expected a one in five chance of a rate rise today. Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said a rise would have been “a major surprise”.

“Throughout the past year the MPC has taken a consistent line that inflation is high because of a series of temporary factors, which will gradually fall away," he said.

“Given that the drivers of the recent surge in inflation - commodity prices and increases in indirect taxes - fall squarely into this category, it is difficult to see how a change in policy could be justified.

“Indeed, we calculate that if you strip the VAT effects out of core inflation, you are left with an underlying rate of inflation that is close to one per cent.”

The UK would have been the first major advanced economy to tighten policy since the start of the financial crisis if it had raised rates.

Last month the BoE surprised markets when new MPC member Martin Weale joined long-standing hawk Andrew Sentance to call for a rise in rates to 0.75 per cent from a record low 0.5 per cent, and other MPC members said their decision was "finely balanced".