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UK base rates to remain on hold

This week's meeting of the MPC is likely to keep UK base rates on hold as concerns about the UK economy continue to outweigh the potential problem of high inflation. Despite hopes that the rate of inflation in the UK would fall over the last couple of months it has remained stubbornly high with the Bank of England citing a number of one-off factors as the main reason for this.

Many people expect UK base rates remain at 0.5% for many months to come as the UK economy continues to battle against a difficult worldwide economic background and the threat of inflation. The need to inject confidence and capital into the UK economy seems to be far greater than the potential requirement to attack the rate of inflation. Despite the fact that the UK economy grew by 1.2% in the second quarter of 2010 it would appear that the second half of 2010 will be more difficult.

In a perfect world the Bank of England MPC would probably be looking to increase UK base rates to fight inflation but at this moment in time it would appear too dangerous as this would effectively strangle any potential recovery in the UK economy.

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