Fears for economy to see interest rates kept on hold

July minutes of the Bank’s monetary policy committee meeting showed that policymakers voted seven to two to hold interest rates at their record low of 0.5 per cent despite inflation of more than double its 2 per cent target.

The committee, chaired by Sir Mervyn King, pictured, said inflation is expected to push beyond 5 per cent and will reach its peak more quickly than it previously expected, partly as a result of recently announced gas and electricity price hikes. But it declined to raise interest rates to beat down the rising cost of living, because of fears that a rise would damage the fragile economic recovery.

The risks posed by the eurozone debt crisis to the UK’s economy remained substantial, it said.

Also, the pace of global activity had slowed following the Japanese tsunami and the rising price of oil caused by uprisings in the Middle East and North Africa.

As a result, it expected GDP to have grown only moderately in the second quarter of 2011, while the outlook for the third quarter appeared to be “softening”.