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Bank holds rates at 0.5pc, makes no change to QE
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LONDON: The Bank of England kept interest rates at 0.5 per cent for the 18th month in a row and announced no new quantitative easing purchases, in a widely expected decision on Thursday.
British inflation was 3.1 per cent in July, well above the central bank's 2 per cent target, but Bank said last month this was mostly due to temporary factors while future growth was likely to weaken, making rate rises inappropriate for now.
None of the 60 economists polled by Reuters last week had forecast a change in policy and most do not see interest rates rising until the second quarter of next year at the earliest.
"The economy does not yet have the ability to stand on its own two feet, particularly with the uncertainties over the effects of the forthcoming fiscal squeeze, and accordingly the first rise in rates looks some way off," said Investec economist Philip Shaw.
As usual, the central bank issued no statement alongside the policy announcement made after the nine-man Monetary Policy Committee's September 8-9 meeting. Financial markets were unmoved.
Bank cut rates to a record low of 0.5 per cent in March 2009 and started buying financial market assets -- mostly gilts -- with newly-created money, a scheme which topped out at 200 billion pounds at the end of January.
When minutes to this month's meeting are published on September 22, many economists expect it to show a repeat of August's discussion, in which Andrew Sentance was the sole policymaker to vote for a rise in rates, as he has been since June.
Shaw said there was a chance one or more MPC members could have voted for an increase in quantitative easing this month, as concerns that the US economy is stalling have increased since August's meeting.
"If there is to be a move over the coming months, it is more likely to take the shape of a resumption of quantitative easing than higher rates, despite Sentance's recent position," he said.
Although British consumer price inflation is well above its target, last month Bank forecast it would slow sharply due to slack in the economy, once the effect of past sterling weakness and ongoing sales tax rises fades.
Despite the strongest growth in nine years in the second quarter, Bank has said growth is likely to fall due to government spending cuts and weak overseas demand.
Britain's goods trade gap widened to the largest on record in July, official data released earlier on Thursday showed, and PMI industry surveys for the services, manufacturing and construction sectors all point to weaker GDP growth.
However, it is unclear whether growth will simply slow to a long-term trend rate of around 0.5 per cent from Q2's 1.2 per cent, or whether even more sluggish growth will set in for the long haul as the government slashes spending over the next five years.-Reuters
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