UK interest rates have been maintained at a record-low 0.5% for another month.
The Bank of England announced today that its Monetary Policy Committee had voted not to change the official Bank Rate paid on commercial bank reserves.
With the economy struggling to return to growth since the global financial crisis erupted in 2008, rates have been held at 0.5% for more than four years.
The Committee also voted today not to restart the Bank of England’s asset-buying quantitative easing (QE) programme, with a majority of members voting that it is not necessary to add to the GBP375bn of government bonds purchased between March 2009 and October 2012.
Governor Sir Mervyn King and two other policymakers voted in February and March to increase QE but they were outvoted. Details of today’s vote have not yet been released.
Two weeks ago Chancellor George Osborne gave the Bank of England stronger backing to overlook one-off factors impacting on inflation. Despite the change to its mandate, the central bank is sticking with its current policy – for now at least.
Economists have speculated that further stimulus may be agreed later in 2013 following the arrival of Mark Carney, the current governor of the Bank of Canada, who is due to take over from Sir Mervyn as Bank of England governor in July.
The British Chambers of Commerce welcomed the decision to maintain QE at GBP375bn and hold interest rates at 0.5%. Commenting on the growing pressure for more QE later in the year, the business group’s chief economist, David Kern, claimed that such a move would be “misguided” and likely to “provide only marginal benefits for the real economy while heightening risks of financial distortions, bubbles and higher inflation.”
Stephen Gifford, director of economics at the CBI, agreed that with muted growth prospects and international uncertainty the possibility of further QE will remain open. He added, however, that the persistence of above-target inflation may act as a bar to looser policy on the issue.