Observers argue that the main reason for maintaining interest rates at their current level was because the Consumer Price Index (CPI) inflation has risen sharply to well above the 2% target, reaching 2.9% in December. 

That rise was largely accounted for by higher petrol price inflation and the reduction in the main VAT rate a year earlier dropping out of the calculation.  Inflation is likely to have risen further in January, reflecting the restoration of the VAT rate to 17.5%.  Pay growth on the other hand has remained subdued.

Interest Rates Held at 0.5% - Expert Reaction

RLAM’s Economist, Ian Kernohan:

“We think Quantative Easing is now done and interest rates will be higher by the end of the year: even Bank Rate at 2% would still be very low in real terms, given inflation expectations of 2% or higher.  The next hurdle for the market is the Inflation Report next week, although today’s decision gives us some inkling of what it will contain.  Further out, the election looms large and prospects of a hung parliament will make for some volatile trading.

Ben Thompson, Director, Mortgages at Legal & General:

 “More bullish elements within the committee have been hinting that interest rate rises are to come later this year and this is looking increasingly likely.

“With consumer confidence on the up, house prices recovering and signs of life in the mortgage market, we don’t want a relapse and a continued reliance on quantitative easing life support,” he said.

Ray Boulger, John Charcol Mortgage Brokers:

'The next Government will have no choice but to introduce stringent fiscal measures after the election and these are almost bound to increase unemployment in the public sector.  With the impact such measures will have on containing inflation, it is easy to see why deflation is just as likely to be a problem in the UK as inflation over the next few years.

“With interest rates likely to remain low for some time we continue to recommend trackers to most clients, but for those wanting a fixed rate, 5 year fixes around 5% generally look more attractive than the cheaper 2 - 3 year fixes as these only provide interest rate protection for a short period.'

David Black, Banking Specialist at Defaqto:

'It is no surprise that the bank base rate is unchanged for the eleventh month in a row but it is seriously bad news for Britain’s hard pressed savers and particularly for those on modest incomes who rely on interest from savings to boost their means. It will be a severe blow to many retired people.

'There are things that savers can do to boost their savings rates. It has been apparent for sometime that inertia and loyalty does not pay in the current savings market. A proactive approach by moving variable rate savings accounts to take advantage of things like introductory bonuses from those banks and building societies appearing in the best buy tables would boost the returns for many.

'On the other side of the equation we have seen a number of Building Societies actually increasing their Standard Variable mortgage rates because of margin pressures from their existing mortgage book.

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