Bank Of England Keeps Rates Unchanged

As expected, the Bank of England left interest rates unchanged at 0.5%, as it keeps an eye on inflation, while supporting the economic growth currently taking place. English consumer price inflation was 3.3% in November, and is expected to rise, as food and fuel prices continue to gain. The Bank of England expects inflation will subside next year and go back under its 2% target, where it hasn't been since December 2009. "Inflation is primarily being driven by temporary factors such as a rise in VAT, high commodity prices and past depreciation of the sterling. Stripping away these factors reveals that underlying price pressures remain low," said Nida Ali, economic adviser to accountants Ernst & Young. The markets believe that due to the rising inflation, the Bank of England will raise rates as early as May. "Pressure is mounting on the MPC," said Roger Bootle, economic advisor to Deloitte. "However, I continue to think that the rise in inflation will be temporary and believe that interest rates need to stay low if the economy is to stand any chance of weathering the enormous fiscal tightening." MPC member Andrew Sentance wants to raise rates, while Adam Posen believes additional quantitative easing is needed. The other 7 members of the MPC have voted to keep policy unchanged.