Andrew from Vista Financial

Bank of England to keep rates at 0.5% until 2011

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    An interesting outlook from the economists at RBS.


    Interest Rates


    The Bank of England pressed ahead with asset purchases, and has now spent c75% of the £125bn pot allocated for this programme.


    There were no changes in the Bank Rate, and we expect it to stay at 0.5% until the beginning of 2011. That is because the wider economy still looks fragile, in spite of some more signs of stabilisation. The latest data on industrial output (for April) managed a rebound of sorts, rising 0.3% m/m, but it remains 12% below the level of last year. Unemployment continued its steady trek upwards, rising 230k in the three months to April. More worryingly still, the number of workers employed suffered its sharpest fall on record, as 270k were put out of a job between February and April. Wage growth also continued to be depressed. The effects of a weaker labour market have started to feed through to retail spending, which declined in May. The volume of sales on the high street is now 1.7% lower than a year ago. This will have knock on effects on profitability and rents across the high street. And yet inflation stubbornly stayed above the Bank’s 2.0% target. Looking forward, inflation is likely to moderate in the face of subdued wage growth and little retail pricing power.

    This material is published by The Royal Bank of Scotland plc ("RBS") which is authorised and regulated by the Financial Services Authority for the conduct of regulated activities in the UK. It has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments, other financial instruments or related derivatives ("Securities"). It should not be reproduced or disclosed to any otherperson, without our prior consent. This material is not intended for distribution in any jurisdiction in which its distribution would be prohibited.

    Whilst this information is believed to be reliable, it has not been independently verified by RBS and RBSmakes no representation, express or implied, nor does it accept any responsibility or liability of any kind, with regard to theaccuracy or completeness of this information. Unless otherwise stated, any views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the RBS Group’s Group Economics Department, as ofthe date of publication of this material and are subject to change without notice. Recipients of this material should make their own independent evaluation of this information and make such other investigations as they consider necessary (including obtaining independent financial advice), before acting in reliance on this information. This material should not be regarded as providing any specific advice. RBS accepts no obligation to provide any advice orrecommendations in respect of the information contained in this material and accepts no fiduciary duties to the recipient in relation to this information.

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