Interest rates on hold as doubts grow over economic recovery

The decision will disappoint arch-hawk Andrew Sentance, who steps down at the end of the month after nearly five years on the Bank’s Monetary Policy Committee and analysts believe there is a strong chance that pressure for higher rates will ease after his departure.

An economist at Investec, Philip Shaw, said yesterday: “Relatively soft UK activity data, plus the drop in CPI inflation to 4.0 percent in March, had removed any realistic expectations of a rate rise.”

Institute of Directors chief economist Graeme Leach said: “The UK economy needs loose monetary policy and tight fiscal policy. Raising interest rates now would risk a contraction in the money supply, a double-dip recession and further undermine the banking system. An easing in fiscal policy and a tightening in monetary policy could result in the worst of all worlds and an even bigger budget deficit.”

Home owners considering remortgaging have been advised to sit tight as commentators predicted that fixed-rate deals had further to fall.

Figures from financial information group Moneyfacts show that the average cost of a two-year fixed rate mortgage has dropped to 4.5 per cent from 4.58 per cent in March, while five-year fixed rate loans now average 5.62 per cent, compared with 5.66 per cent two months earlier.

Ray Boulger, senior technical manager at John Charcol, said there had been quite a marked change in outlook among economists, most putting back forecasts for rate rises until at least August.