Bank holds interest rate steady

The Bank of England is maintaining its base interest rate at a record low of 0.5% for the 22nd consecutive month.

The move by the Bank's policymakers, charged with keeping consumer price index at the Government's target of 2%, came despite inflation reaching 3.3% in November, driven by surging commodity prices.

The Bank also decided not to alter the size of its quantitative easing programme, maintaining it at the current level of £200 billion.

Policysetters have previously forecast that they expect inflation to rise to 4% in the spring, but they said that the surge would be of a temporary nature and it would fall back again next year.

The weak economic recovery has caused the Bank to choose above-target inflation over the risk of a long-term downward spiral of the economy that could lead to a "double-dip recession".

Putting up interest rates might help reduce inflation but it would also restrict the spending power of homeowners with tracker mortgages and people repaying other debts, which would further endanger the recovery.

Consumers' spending power is being squeezed because pay packets are not keeping up with inflation.

There has been a barrage of bad news for cash-strapped consumers in recent weeks as petrol, gas and clothes all rose in price, and last week's VAT rise from 17.5% to 20% pushed up the cost of most goods and services.

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