Thursday, August 5, 2010

Bank of England holds rates steady at 0.5% as expected

LONDON: The Bank of England kept interest rates at a record-low 0.5% on Thursday, Aug 5'' and announced no new quantitative easing purchases, a decision universally expected in a Reuters poll of economists.

None of the 61 economists polled last week expected a change in policy, and most did not expect a rise in interest rates until April next year at the earliest.

Although consumer price inflation at 3.2 percent is well above the BoE's 2 percent target, most policymakers view the factors that pushed it up -- sterling weakness, higher sales tax and higher oil prices -- as one-offs that will fade away.

Most economists predict growth will slow from the unexpectedly strong 1.1 percent recorded between April and June because of looming government spending cuts, weak European demand for UK exports and banks' continuing reluctance to lend.

For the past two months, Andrew Sentance has been the only policymaker to vote for a rise in rates and last month the Monetary Policy Committee as a whole considered loosening policy for the first time since February.

The MPC will have had access to a quarterly update to the BoE's growth and inflation forecasts, which will be published on Aug. 11, while minutes of this MPC meeting are due on Aug. 18.

The BoE cut interest rates to 0.5 percent in March 2009 during the depths of Britain's recession, and launched a programme of quantitative easing, buying 200 billion pounds ($316.5 billion) of assets -- mostly gilts -- by February 2010 to pump money into the economy.

August's meeting was the first to include former economic think tank director Martin Weale, the replacement for long-serving MPC member Kate Barker, who stepped down after May's meeting. - Reuters

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