City analyst says "talk of recovery is far too premature"

The Bank of England has announced they will leave interest rates on hold at 0.5 per cent for the 10th month in a row. The MPC also voted to continue its quantitative easing programme, currently totalling £200 billion.

Sterling barely reacted to the news, at $1.5907 against the US Dollar, down 0.7 pc. It moved slightly against the euro, from €1.1097 to €1.1102.

Whilst the announcement was widely expected, Mark Bolsom, Head of UK Trading Desk at Travelex, the world's largest non-bank FX Payments Specialist, expressed surprise that some City economists have forecast rates will rise as early as March 2010.

Bolsom says, "Economists that are predicting a rate rise in March are far too bullish. Whilst inflation is certainly rising and there are signs of growth and improvement in both the services and manufacturing sectors, talk of a recovery is, as yet, far too premature.

"Let's not forget that for the time being, the UK remains the only major economy still officially in contraction. And whilst we expect the UK's GDP figure to show modest growth in the last quarter of 2009, the Bank of England will want to see at least two consecutive months of sustained and reasonable growth before even considering tightening monetary policy. The last thing Governor King will want is to choke off recovery in its infancy."

Bolsom continues, "Added to this, there is little evidence that the current improvement in market data is filtering through to consumers - the latest figures on consumer confidence were disappointing.

"Hiking up mortgage repayments whilst unemployment remains high would be disastrous for UK consumers. In much the same vein, raising rates above 0.5 pc too early would ensure that credit remained tight for UK businesses. Until the Bank of England sees consistent evidence that banks are lending more regularly, interest rates will continue to be held at 0.5%. We expect rates to stay at 0.5 pc until the beginning of 2011 at least."