Cautious bank keeps interest rates on hold

The Monetary Policy Committee (MPC) left borrowing costs unchanged at 0.5 per cent for the 10th month in a row, and made no move on its 200bn efforts to boost the money supply.

The decision comes despite figures this week showing a two-year high for manufacturing activity, recovering mortgage lending and positive Christmas trading across the high street.

Although the UK is expected to have finally emerged from recession in the final quarter of 2009, experts predict the MPC will leave interest rates on hold well into this year to avoid threatening a fragile recovery.

The Bank's programme of quantitative easing to support the economy is due to end next month, when rate-setters will make a fresh assessment of its impact alongside the latest forecasts on inflation and growth.

Lee Hopley, chief economist with the EEF manufacturers' organisation, welcomed the MPC's decision to hold while the strength of the recovery "remains in doubt".

"There are a number of potential pitfalls even as the UK economy starts growing again, including cautious consumers, questions over the public finances and a still-fragile banking system. The MPC is right to stick until the economic picture becomes clearer," she said.

Despite this, other research revealed that eight mortgage lenders have increased their standard variable rate since April, despite interest rates being kept on hold.

Nationwide and Skipton are among the groups that have introduced changes to the rates they charge people who do not remortgage to a new deal when their existing one comes to an end.

Although lenders typically change their SVRs in response to movements in the base rate, they can choose to change it outside of an interest rate decision.