Call for increased lending as rate remains unchanged

The Bank of England has maintained the Bank rate at 0.5% for the seventh month, as the economy shows mixed signs of recovery.

The move was widely expected, and is considered sensible by most commentators. Hetal Mehta, senior economic adviser to the Ernst & Young Item Club, said that the rate was not expected to change before November.

Graeme Leach, chief economist at the Institute of Directors, said that despite increasing optimism in surveys, the green shoots of economic recovery were "difficult to see" in the statistics.

"In the absence of clear evidence of recovery, the Monetary Policy Committee is absolutely right to keep interest rates unchanged."

However, David Kern, chief economist at the British Chambers of Commerce, warned of the serious risks posed by "persistent weakness in lending to businesses, particularly to small firms".

He called on the Bank to consider cutting the interest rate on deposits it holds for commercial banks, in an attempt to discourage hoarding and encourage greater lending.

"Positive signs of recovery cannot obscure the risks of a relapse. The economy is still very fragile and the productive sector is vulnerable," he warned.

IMAGE: AP Photo/Alastair Grant