Cost of Borrowing Unchanged

Last week the Bank of England announced that it would hold interest rates at 0.5% for the third consecutive month, but stopped short of extending its quantitative easing program. With last months’ injection of £50bn into the plan, industry had hoped for the remaining £25 billion to be thrown in, but it appears that for the moment at least, this is being held in reserve.

It could be that the Bank cautiously thinks the economy is showing some signs of a recovery, and a key survey on the service sector from  CIPS/Markit, seemed to back this up. The survey suggested that a recovery may be coming faster than expected, as the sector grew last month for the first time in over a year.

Further encouraging news came from Halifax, and while they were keen to play down the news and focus attention on the three monthly figures,they reported house prices jumping 2.6% in May, the fastest rate of growth since 2002.

Despite the pockets of good news and optimism that the worst may be over, some economists expect interest rates to remain low until 2010, and worry that any recovery could be short lived.

The European Central Bank also held interest rates, at 1%.

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