The Bank of England has announced that interest rates will remain at the record low of 0.5 per cent.
Rates have remained at their lowest level for the past five years and there has been suggestion that they could increase as the economy recovers. The Bank's decision follows a split from the Monetary Policy Committee (MPC) on whether or not rates should be raised. Two members voted in favour of a 0.25 per cent increase to 0.75 per cent, according to the minutes of the August 6th and 7th meeting.
Ian McCafferty and Martin Weale supported a raise in rates but were outvoted 7-2, it marked the first time the MPC was split on interest rates since July 2011. However, the Bank has decided to keep rates at 0.5 per cent continuing their record low which was originally introduced in March 2009.
Bank governor Mark Carney has warned that the rates could rise in the near future. Mr Carney said that any rise would be small and gradual making it manageable for companies and consumers alike. Analysts believe that an interest rate increase will come by the end of 2014 as a rise in 2015 would be too close to the May general election.
Philip Shaw, Investec chief economist, said: "In any event the issue is that there is typically a preference, if possible, to avoid monetary policy becoming a political football in an election campaign. Indeed it is relatively rare for rates to rise before general elections, and if they do, the moves tend to come some time in advance."
There are still concerns regarding the slow growth of wages which would be affected should the Bank decide to increase rates. Introducing the hike too soon could hamper both businesses and individuals alike, according to analysts.
Find up to date information on spread betting strategies at City Index
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.