BoE keeps rates unchanged at 0.5 pct despite high inflation

The Bank of England (BoE) on Thursday kept interest rates unchanged at 0.5 percent, even though inflation remained above the central bank’s target of 2 percent for the fourteenth consecutive month in January.

The annual consumer price index (CPI) in the UK rose to 4 percent in January compared with 3.7 percent in December 2010, according to the Office for National Statistics.

Markets had expected the BoE to leave the interest rates unchanged at 0.5 percent. Despite pressure on BoE to hike interest rate to tame the accelerating inflation, the bank left the rate unchanged for two years since March 2009, judging that economy recovery is too weak to increase the borrowing costs.

Consumer prices in Britain rose in January, mainly led by an increase in value added tax (VAT) and rising crude oil prices. Also, the CPI in January advanced 0.1 percent month-on-month, recording its first ever increase between a December and January.

The largest upward effect came from fuels and lubricants where increases in VAT, fuel duty and the price of crude oil led to prices increasing by 4.4 per cent between December 2010 and January 2011, the statistics office said.

Inflation is forecast to remain stubbornly high during this year as a result of increase in VAT and pressure from rising energy and commodity prices, according to the Confederation of British Industry (CBI). CBI estimated the inflation in Britain to exceed the BoE target of 2 percent in 2011 for a second year running.