Bank of England rejects interest rate rise despite inflation worries

Historic low to be maintained until pace of recovery and price pressure become clearer, says rate setting committee

Last modified on Thu 24 Jun 2021 07.26 EDT

The Bank of England has left interest rates on hold at a historic low despite concerns that inflation will accelerate this year as the economic recovery gathers pace.

Policymakers on Threadneedle Street’s monetary policy committee (MPC) said rates should remain at 0.1% until it was clear how quickly the economy would recover and how much pressure there will be on firms to raise prices.

The central bank also said it would keep its programme of electronic money printing, known as quantitative easing, in place to keep the recovery on track through the autumn.

Chief economist Andy Haldane was the only member of the MPC to vote to taper the QE programme before it reached £895bn, in line with his vote at the MPC’s last meeting in May.

In May, the bank’s policymakers raised their estimate for UK GDP growth to 7.25% in 2021, up from a previous forecast in February of 5%.

The MPC said the rapid progress with the Covid-19 vaccine and easing of restrictions paved the way for a surge in spending as consumers began to visit previously closed restaurants, cafes and leisure facilities.

Inflation has increased in recent months, with official figures estimating that it reached 2.1% in May, slightly above the Bank’s 2% target level.

The central bank and most City economists had estimated that inflation would peak at around 3% this year before falling bank in 2022 to about 2%, though some analysts have warned it could reach 4%.

In 2011 the UK’s inflation rate hit 5.2% as the economy recovered from the 2008 banking crash, before falling back in subsequent years.

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