Bank of England maintains interest rate

Date: 8th January 2010

Small businesses could be among those to notice a "slow and drawn out" recovery from the economic downturn, it has been suggested.

The comment follows an announcement from the Bank of England's (BoE) Monetary Policy Committee to maintain the base rate of interest paid on commercial bank reserves at 0.5 per cent.

Ian McCafferty, chief economic adviser at the Confederation of British Industry (CBI), said: "We are not surprised to see that the BoE has made no changes to interest rates or its quantitative easing (QE) policy.

"The Bank had promised a thorough review of its QE policy in February, and we do not expect any rate rise until late in the second quarter of this year."

Mr McCafferty explained that the recovery in the UK is likely to be similar to that following the 1980s recession.

"The economy will have to absorb a good deal of structural adjustment," he added.

"Banks need to rebuild their capital and reduce their leverage, consumers must restore their savings, companies must adapt to higher costs of capital, and the public sector needs to rectify its deficit. Sub-par growth is therefore likely to persist into 2011."

Posted by Jacob Williams