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Bank of England keeps interest rates at 0.5%

The Bank of England has held its interest rates at 0.5 per cent for the 71st successive month, as it maintains its stimulus programme of quantitative easing.

After the Office of National Statistics revealed last month that the UK economy grew by just 0.5 per cent in the final quarter of 2014, many forecasters are now intimating that interest rates will not rise until 2016.

In November 2014, the Bank predicted inflation would average one per cent in Q1 2015, rising to 1.4 per cent in Q4 2015 and 1.8 per cent by late 2016.

With falling inflation and oil prices, the pressure on the Bank to raise interest rates has eased dramatically in recent months. A meeting of the Bank’s Monetary Policy Committee (MPC) last month resulted in all members voting to keep interest rates at their current level.

Andy Haldane, the Bank’s chief economist has said officials are in “no rush” to raise interest rates having pegged them at a record low since March 2009.

Haldane said that when rates do start to rise it could be by just half a percentage point a year “for several years”.

Should interest rates remain unchanged at the next MPC meeting in March, it will signal the fourth longest period of time without a change since the foundation of the Bank of England in 1694.

Howard Archer, chief economist, IHS Global, believes a rate rise is still possible in 2015, with the Bank focused on a positive medium-term inflation outlook.

“The Bank of England has stressed the importance of looking through recent and likely further near-term very weak inflation developments resulting from sharply reduced oil prices and focusing on the medium-term inflation outlook, which suggests an interest rate hike late on in 2015 remains a very real possibility,” said Archer.

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