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UK base rates remain at 0.5%

Even though the vast majority of analysts had expected UK base rates remain at 0.5% after today's meeting, this is the 17th straight month in which UK base rates have remained unmoved. We are entering a very difficult situation for the UK government and the Bank of England because ultimately there is a need to reduce the budget deficit, feed liquidity requirements for the UK economy while also attempting to tackle the potential future problem of inflation.

The decision to maintain UK base rates of 0.5% is unlikely to have been a unanimous decision, with a number of MPC members said to favour an increase in base rates in the short term. However, there is no doubt that the vast majority of MPC members will have voted for no change as a way to at least offset the forthcoming budget cuts and tax rises in the UK. It is unlikely we will see UK base rates move higher for the next 12 months unless the threat of inflation creeps back into the headlines.

If the UK economy were to stall over the next few months it is likely we would see the reintroduction of the number of liquidity programs which should improve funding available for the consumer and the business arena. However, there is no need for the Bank of England to push for any cheap lending at the moment although this will be something the bank is monitoring on an ongoing basis.

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