Rates stuck at 0.5 per cent as MPC remains on the fence

Julian Harris
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INTEREST rates will be held at 0.5 per cent going into the new year, after the Monetary
Policy Committee (MPC) yesterday voted against altering its stance.

The £200bn programme of quantitative easing (QE) will also continue.

Analysts expected the rate setting body to maintain current levels, yet prospects for next year are dividing opinion.

Rates could increase as soon as March, and reach two per cent by the end of 2011, according to Simon Ward of Henderson Global Investors.

Yet some economists anticipate a slowdown in the economy that sees interest rates frozen.

“We expect bank rates to remain at 0.5 per cent for several years,” said Andrew Goodwin of the Ernst & Young Item Club.

And it is likely that the MPC remains split three ways, said Goodwin.

Andrew Sentance is thought to have voted for a 0.25 per cent rise in rates for the seventh straight month, after arguing for greater tightening.

On the opposite side, American Adam Posen is expected to have proposed further QE to counteract the government’s fiscal consolidation.