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UK Interest Rates Latest Update

Bank of England Quiet on UK Interest Rates

The Bank of England´s Monetary Policy Committee (MPC) has been noticeably quiet lately after receiving criticism about the stance on interest rates. The UK base rate has been held at an all time low of 0.5 per cent since March 2009 and a report issued by the bank in November indicated interest rates would not be lifted at least until the end of 2013.

The banks stance has received heavy criticism and are being urged to increase interest rates sooner rather than later. Attempts to boost the economy with £375bn of quantitative easing did little for the country other than the wealthiest ten per cent. Financial commentators are getting restless with the lack of alternative action the bank is prepared to take.

The desperate financial crisis that is wreaking havoc in the Eurozone is not helping Britain´s cause in terms of export and import – or at least that´s what the papers say. Official UK statistics tell a different story valuing UK trade exports rising by £0.1 billion, and imports falling by £0.1 billion. That means the UK is selling more than they are buying.

How will US policy affect UK interest rates?

Across the pond, the US Federal Reserve has announced it does not plan to raise interest rates until unemployment falls below 6.5%. The US economy is in an even worse state than the UK and the FED are holding interest rates below 0.25 per cent whilst at the same time using the same quantitative easing methods that have failed in Britain.

Given the codename, Operation Twist, the FED has already bought $85bn (£53bn) worth of government bonds and mortgage-backed securities. Operation Twist was first trialed by J.F.K in 1961 and although it did reduce the long-term interest was still labeled a “gimmick” because the economy was improving anyway.

The central banks in the UK, US and in the Eurozone are using QE to encourage credit spending and monetary expansion. The results are intended to moderate the pressure caused by debts incurred through overseas trading. Although it QE has failed in the UK thus far, the economy is nonetheless slowly recovering – except it is doing so naturally as businesses did not bite the banks cherry.

Last August the bank launched the Funding for Lending Scheme which is designed t encourage banks to lend low-interest loans to small businesses and home owners. The corporate money men didn´t take the bait so the bank has turned its attentions to the general public. FLS has also received criticism from economists and the scheme does suggest we will be heading for another financial collapse before the end of the decade. Meanwhile the bank remain resilient about keeping UK interests low and have gone quiet because economists have unveiled their plans for financial failure.