Bank Of England Keeps Interest Rate On Hold

The Bank of England has announced its decision to hold the interest rate and pause its programme of pumping newly-created money into the economy.

The Monetary Policy Committee’s move was widely predicted by the City, including all members of the Sky News Money Panel. They expected the Bank to shift into “wait and see” mode to judge the strength of the recovery.

The Bank last week finished the latest round of quantitative easing (QE), bringing the total amount of newly-created money spent on Government and company bonds to £200bn.

In a statement, the Bank said: “The committee noted that this stock of past purchases, together with the low level of Bank rate, would continue to impart a substantial monetary stimulus to the economy for some time to come.

“The committee will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.”

The MPC’s no-change position, which leaves the cost of borrowing at its historic low level of 0.5%, follows a surprisingly weak climb out of recession in the final quarter of last year.

The UK’s longest and deepest economic downturn officially ended with growth of just 0.1% in the last three months of 2009, leading to fears of a so-called “double-dip” recession.

As a result, some economists rightly predicted the Bank would keep the door open to more QE if the economy continues to struggle.

City expert David Buik, of BGC Partners, told Sky News: “I think the Bank of England is absolutely right to be very cautious and vigilant.

“It wouldn’t surprise me at all if, in the advent of higher taxation almost certainly coming later this year, the Bank had to inject another £25bn, say, in another three months’ time.”

MPC members had access to detailed economic forecasts from the Bank’s forthcoming quarterly inflation report during their two-day meeting.

Recent signs on the economy have been underwhelming, with figures from the UK’s crucial services sector showing slowing growth last month after disruption from the snowy weather.

Meanwhile, Consumer Prices Index inflation jumped at a record rate to 2.9% in December – well above the Bank’s 2% target.

There are concerns among committee members that inflation may become a problem, although the weakness of the banking sector and credit availability are pushing prices in the opposite direction.

Source: Ed Merrison, Sky News Online

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