Industry hails UK decision on interest rate

London dominates the $5-trillion-a-day foreign exchange market, trading twice as many dollars as the United States and more than twice as many euros as the entire euro zone, according to TheCityUK study.

The Bank of England's decision to hold interest rates at a record low of 0.5% and to press ahead with its £200 billion (€242 billion) quantitative easing scheme has been welcomed by business leaders.

The announcement by the UK's Monetary Policy Committee (MPC) yesterday (10 June) comes ahead of a raft of spending cuts expected to be announced on 22 June as part of the first budget from David Cameron's new government.

The European Central Bank (ECB) also announced that its rates would remain unchanged at 1%.

The British Chamber of Commerce (BCC) said UK stimulus measures should remain in place until economic recovery is assured, although concerns over inflation have been growing in some quarters.

David Kern, the BCC's chief economist, said the "expansionary" quantitive easing policies – which effectively mean printing more money – and low interest rates must continue in order to support investment.

"We fully support the decision to maintain interest rates at 0.5% and the size of the Quantitative Easing (QE) programme at £200 billion. Given the dangers still facing the economy, the MPC must persevere with expansionary policies that help businesses to invest and grow," he said.

Kern said interest rate hikes or reductions of the quantitive easing stimulus should be delayed given the risk of a double-dip recession. He cited instability in the euro zone as the primary reason for the UK to keep its current course.

"The coalition government's determination to deal with the deficit should make it easier for the MPC to keep interest rates low for a prolonged period. If unemployment rises significantly, it may again become necessary to consider expanding the QE programme," Kern said.

The BCC has also called on the UK government not to spare the health and overseas aid budgets from upcoming spending cuts.

Meanwhile, British Finance Minister George Osborne is set to give new powers to the Bank of England which will allow it to monitor lenders. This comes as the EU continues to debate plans for a new pan-EU financial watchdog.

The new UK government has also repeated its view that a tax on bank transactions is an area where global agreement should be sought, rather than an issue on which the EU can act unilaterally.

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