Call to leave interest rates at record low

The Bank of England was last night urged to leave interest rates at record lows despite signs the economy recovered early this year.

Gross domestic product in the UK increased by 0.7pc in the first quarter of 2011 after a 0.5pc decline at the end of 2010, according to the National Institute of Economic and Social Research.

But the ‘strong’ performance in the first three months of the year was ‘flattered’ by the snow-related slump late last year and masks weak underlying growth, the report said.

Enlarge   The Bank of England

Low: The Bank cut rates to rock bottom levels in March 2009


It came as official figures showed factory output stagnated in February as the manufacturing recovery came shuddering to a halt. It took the shine off bullish news about the services sector 24 hours earlier.

NIESR economist Simon Kirby said the state of the recovery was ‘uncertain’ and urged the monetary policy committee to leave rates at 0.5pc when its latest meeting ends at noon today.

‘The average rate of growth in the final quarter of last year and the first quarter of this year was 0.1pc,’ he said.

The Bank cut rates to rock bottom levels in March 2009 but with inflation at 4.4pc – more than double the 2pc target – pressure is mounting on the MPC to raise borrowing costs.

But business leaders and economists yesterday warned that a premature increase would hammer hard-up consumers and risked tipping the economy back into recession.

David Kern, chief economist at the British Chambers of Commerce, said: ‘Although the UK economy has returned to positive growth, the recovery is still fragile and faces many obstacles over the coming months.

‘The MPC should postpone interest rate increases until the recovery is more secure.’

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