Bank's MPC unites to keep interest rates where they are

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Minutes from this month's meeting of the Monetary Policy Committee showed that all nine members voted to leave rates at 0.5% and maintain quantitative easing, or printing money, at £200 billion.

The Bank said that the UK economy was growing again "albeit weakly" and warned of "powerful headwinds impeding the recovery".

The improvement in the economy was underlined by figures today showing that unemployment fell for the first time in 18 months at the end of last year. The Bank said that although inflation will rise above the 2% target in the short-term - driven up by the rise in VAT from 15% to 17.5% and higher energy prices - it will fall back later in the year.

The comments eased fears that the MPC would raise interest rates to cap inflation which figures show jumped from 1.9% in November to 2.9% in December.

Bank Governor Mervyn King last night warned that the patience of UK households will be "sorely tried" in the years ahead as the recovery from recession remains slow.

Vicky Redwood, senior UK economist at Capital Economics, said: "We still think that a relapse in the labour market this year is likely to be one of the factors undermining the economic recovery. In turn, disappointing economic growth is likely to damp talk of a rise in interest rates later this year."

Howard Archer of IHS Global Insight said: "The odds are now stacked against the Bank extending its quantitative easing programme further barring a major relapse in UK economic activity over the coming months.

"While December's surge in inflation has increased expectations the Bank could start raising interest rates well before the end of 2010, we still lean towards the view it will hold off from raising rates until at least the fourth quarter given likely persistent concerns about the strength and sustainability of the recovery."