Bank of England holds UK interest rates at record low

Bank of England
Image caption The Bank of England has kept interest rates at their record low of 0.5% since 2009

The Bank of England has kept interest rates at a record low of 0.5%, despite signs that the UK economy is improving.

The decision was widely expected, given governor Mark Carney's pronouncements that the Bank would not even consider raising rates until unemployment falls below 7%.

Even then, Mr Carney said a rate rise was not guaranteed.

The Bank's Monetary Policy Committee (MPC) has kept rates at 0.5% since March 2009.

The Bank also left its quantitative easing (QE) programme of monetary stimulus unchanged at £375bn. It has remained at this level since July 2012.

With the unemployment rate at 7.6% and inflation, as measured by the consumer prices index, falling to 2.2% in October, economists believe there is little pressure on the Bank to raise rates at this stage, despite mounting evidence of a strengthening economy.

During his Autumn Statement, Chancellor George Osborne announced that the Office for Budget Responsibility (OBR) had increased its UK growth forecast for 2013 from 0.6% to 1.4%.

The OBR also increased its 2014 growth forecast from 1.8% to 2.4%.

Picking up

Earlier this week, the Bank revealed that lending by banks and building societies participating in its Funding for Lending (FLS) scheme was three times higher in the third quarter than in the previous three months, suggesting economic activity was picking up.

The Bank said that lending bodies had taken £5.8bn under the scheme in the three months to the end of September, bringing the total taken so far to £23.1bn.

Under FLS, banks and building societies are allowed to borrow money cheaply from the Bank of England, as long as they then loan that money to individuals or businesses.

But in November, the Bank modified the FLS to exclude individuals, in the belief that mortgage lending no longer needed support given the housing market recovery.

Recent figures from Nationwide building society suggest that property prices are rising at an annual rate of 6.5%.

But increased activity in the housing market has contributed to household debt - including mortgage debt - hitting a record total of £1.43 trillion.

The minutes of the MPC meeting will be published on 18 December, the Bank said.

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