Bank of England retains interest rate at 0.5%

Bank of England retains interest rate at 0.5%

Thursday, October 9, 2014 8:49 pm

The Bank of England voted on Thursday to keep its main interest rate at a record-low level of 0.50 percent, with Britain experiencing low inflation and steady economic recovery.

The central bank’s nine-strong monetary policy committee opted also to maintain the level of its cash stimulus, or quantitative easing, at £375 billion ($608 billion, 476 billion euros), the BoE said in a statement issued following a regular monthly meeting.

“The Bank of England’s Monetary Policy Committee (MPC) at its meeting on 8 October voted to maintain Bank Rate at 0.5 percent,” the statement said.

Mark Carney, Bank of England boss

Mark Carney, Bank of England boss

“The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.”

Minutes of the meeting, containing reasons behind the decisions, will be published on October 22.

“The news on the month had generally been to the downside — weak inflation, no upward revisions to 2013 growth and a slowing in the housing market. But unemployment and labour market participation fell, which may worry the MPC,”noted HSBC bank economist Simon Wells in the wake of Thursday’s decisions.

BoE governor Mark Carney last month hinted that the bank could begin to raise interest rates in early 2015, citing the nation’s economic recovery which compares favourably with gloom hanging over the neighbouring eurozone, Britain’s main trading partner.

In August and September, the BoE voted 7-2 in favour of keeping its key lending rate at 0.50 percent, where it has stood for five and a half years.

Policymakers Ian McCafferty and Martin Weale both voted for a rise to 0.75 percent, citing potential inflationary pressures.

The BoE’s main task is to keep inflation close to a government-set target of 2.0 percent, while Britain’s 12-month inflation in fact dipped to 1.5 percent in August.

British borrowing costs have meanwhile stood at the record-low level since March 2009, when the Bank of England launched its radical QE asset purchase scheme aimed also at stimulating growth following the global financial crisis.

While in the US the Federal Reserve is due to end its own multi-billion-dollar stimulus package this month, minutes from its last meeting indicated policymakers were nervous about raising interest rates too soon.

Last week meanwhile, the European Central Bank held its record-low interest rates unchanged after cutting borrowing costs in September to help the moribund eurozone economy.

The International Monetary Fund this week tipped Britain to outpace the world’s major advanced economies this year, putting its UK growth projections at 3.2 percent for 2014 and 2.7 percent in 2015.

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