Bank of England holds key rate at 0.5 pct
LONDON — The Bank of England kept its main interest rate unchanged at the record low of 0.5 percent Thursday and held off from any further moves to expand the money supply — for now.
Both decisions were widely expected but the Bank of England said it would keep its asset purchase program — known as quantitative easing — under review.
At present, the Bank can buy up to 175 billion pounds ($281 billion) of financial assets, such as government bonds, from the banks. The aim of the policy is to increase the money supply in the hope that eventually the banks will start lending more to the private sector.
As of Oct. 1, the Bank had purchased 158.4 million pounds of assets.
In a statement, the Bank’s monetary policy committee (MPC) said the already-announced program would take another month to complete.
“The scale of the program will be kept under review,” it added.
Minutes from the MPC’s August meeting showed that Bank of England governor Mervyn King and two other members wanted to increase the quantitative easing program to 200 million pounds but were outvoted. Minutes of this month’s meeting will be published on Oct. 21.
Many analysts think the MPC may decide to back more assets purchases next month, when it will be armed with its latest quarterly projections for the British economy.
“Next time will be trickier,” said Stephen Boyle, head of RBS Group Economics.
The Bank will have to decide whether a recovery is indeed under way, thus requiring no expansion of quantitative easing, or whether more stimulus is needed, Boyle said.
“There might not be fireworks at the Nov. 5 meeting but the stakes will be higher,” he said.
Thursday’s decisions came days after disappointing industrial production data for August fueled fears that the British economy won’t return to growth in the third quarter as most economists have been predicting.
Following the industrial data, the National Institute for Economic and Social Research, a leading independent forecaster, estimated that the British economy didn’t grow in the third quarter.
A raft of data releases over the coming weeks culminates with the first official estimate for third-quarter GDP on Oct. 23.
“The next round of data on inflation, GDP, balance of payments and unemployment will form an uneasy backdrop. It will not be a meeting for the faint-hearted,” added Robert Sinclair, director of the Association of Mortgage Intermediaries.
The Bank has kept its key rate at 0.5 percent in March and most analysts think that it will stay there for a while yet.
“I think that monetary policy will remain ultra-loose until 2011 or even much later,” said Roger Bootle, economic adviser to consulting firm Deloitte.
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