Bank of England holds rate at record low 0.50%

LONDON: The Bank of England kept its key interest rate at a record low 0.50 percent following a likely close vote on Thursday, as Britain faces both an uncertain economic recovery and soaring inflation.

"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the BoE said in a statement following a two-day meeting.

Policymakers also refrained from altering the BoE's economic stimulus programme, under which it has already pumped £200 billion (235 billion euros, $322 billion) into the economy.

The announcements were in line with market expectations. Minutes from the meeting will be published on February 23 and analysts said they expected these will show a much closer vote than previously.

"Given the difficult inflation environment we suspect there was a considerable debate at the meeting over whether or not to raise rates," economist Philip Shaw at financial group Investec said after Thursday's vote.

"Indeed one or two members may have switched camps and joined (policymakers Andrew) Sentance and (Martin) Weale, who both voted for a hike last month.

"The MPC will have been given a provisional estimate of next week's CPI (annual inflation) ... and this will certainly have put the pressure on the committee to consider a hike," Shaw added.

Inflation stood at 3.7 percent in December, already way above the central bank's target of 2.0 percent.

While rising costs have increased pressure for higher interest rates, the BoE is also wary about Britain's fragile recovery from its recession that ended in the final quarter of 2009.

British gross domestic product (GDP) surprisingly shrank 0.5 percent in the three months to December, the first drop in economic output since the third quarter of 2009.

The figure has stoked fears that Britain could be heading for a fresh recession as deep spending cuts introduced by the Conservative-Liberal Democrat coalition bite.

BoE governor Mervyn King warned in a recent speech that the current "period of uncomfortably high inflation," rather than the weak GDP data, was a more immediate concern for the central bank.

He told Britons to expect annual inflation to rise to between four and five percent in the coming months due to higher food and fuel prices.