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MPC keeps interest rates on hold

The Bank of England kept interest rates at their record low of 0.5 per cent despite warnings that inflation could rise to 5 per cent in coming months.

The vote by the Bank's nine-strong committee is likely to have been finely balanced after pressure for higher rates intensified in recent weeks.

Policymakers last changed the borrowing rate in March 2009 but the CPI measure of inflation rose to 3.7 per cent in December - well above the Bank's 2 per cent medium-term target - and governor Mervyn King has warned it could hit 5 per cent.

Business leaders applauded the Bank's decision and said any change in borrowing costs would jeopardise the UK's faltering recovery, particularly after economic output contracted by 0.5 per cent in the final quarter of 2010.

With 68% of mortgage lending being at variable rates, the decision will also be welcomed by many homeowners, who continue to enjoy low levels of repayments.

The Bank's Monetary Policy Committee (MPC) also voted to keep its programme of quantitative easing, or money printing, unchanged at £200 billion to encourage growth.

Copyright © Press Association 2011

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