Interest rate to remain unchanged

Bank of England chiefs look set to leave interest rates on hold later this week for the first time since they started an unprecedented bid to halt the nation's slide into a recession.

In just a few short months the Bank of England has slashed interest rates to a record low of 0.5% but experts predict it will not sink any lower when the Monetary Policy Committee makes its announcement on Thursday.

It is also unlikely the Bank will make any changes to its quantitative easing programme, under which it is creating £75 billion in new money to inject into the economy.

The rate is unlikely to be cut again as banks are gripping their purse strings and are unwilling to lend at the current rate because of the huge impact on their profit margins.

Analysts believe the interest rate will remain at 0.5% for the rest of the year, with monetary policy focused on the quantitative easing (QE) started last month.

Howard Archer, chief UK economist at Global Insight, said: "We suspect that interest rates are set to stay at 0.5% well into 2010 as we believe that GDP will contract through this year before the economy stabilises in early 2010."

While official borrowing costs have fallen for six months in a row, the Bank believes rate cuts alone will not be enough. Under QE, the Bank is creating £75 billion in new money, with a further £75 billion available if necessary.

Whether QE will work, however, depends on the extent to which struggling banks pass on the extra funds created by the Bank of England.

It is unlikely members of the Bank's monetary policy committee (MPC) will be too alarmed by last month's surprise rise in CPI inflation to 3.2%, more than one percentage point above target.

In the housing market, mortgage approvals also rose from 32,000 to 38,000 in February, while the Nationwide measure of house prices rose by 0.9% in March, the first monthly rise in that index in over a year. There were also figures showing a slowdown in the pace of decline in the manufacturing sector.