Bank holds interest rates at record low

The nine-strong Monetary Policy Committee (MPC) held interest rates at their record low of 0.5 per cent – where they have been since March 2009 – and left its programme to boost the money supply unchanged at 200bn.

The committee was unswayed by the UK's rapid 1.1 per cent advance in GDP estimated between April and June, as growth is expected to fade in the second half of 2010 when the impact of Chancellor George Osborne's emergency Budget kicks in.

The Bank is keeping its foot firmly on the accelerator to compensate for the slower growth in prospects because of the savage cuts.

Governor Mervyn King also stressed the uncertainty over the world economy and a recent tightening in credit conditions at the Treasury Select Committee last week.

He warned that policymakers could not be confident the recovery would be "sustained" and added that the debate was still "about the appropriate degree of stimulus, not about applying the brakes".

The doubts have overshadowed concerns about above-target inflation on the MPC so far.

Consumer Prices Index inflation has been above three per cent throughout the year - well above the Bank's two per cent target – and the Governor has warned that next January's VAT hike to 20 per cent will keep the cost of living elevated throughout next year.

Inflation pressures, particularly on food prices, will also build through the rest of the year due to other factors such as the recent spike in wheat prices, pushing up bread costs.

The sole dissenter on the MPC so far is Andrew Sentance, who is likely to have voted for a rate rise for the third month in a row.