The Monetary Policy Committee (MPC) of The Bank of England (BoE) voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5% at its September policy meeting, keeping the rate at the same level since 2009.
BoE governor Mark Carney said last month, as part of his forward guidance policy, that the central bank would not consider raising interest rates until the unemployment rate fell below 7%, which he forecast to be about three years.
The Committee also said it would not make any changes to the £375bn of stock of asset purchases financed by the issuance of central bank reserves, provided through its quantitative easing (QE) programme.
In addition and within the forward guidance policy, the MPC agreed to reinvest the £1.9bn of cash flows associated with the redemption of the September 2013 gilt held in the Asset Purchase Facility.
David Kern, Chief Economist at the British Chambers of Commerce (BCC),
said: “The MPC was right to keep interest rates and QE on hold. Recent strong data has increased the likelihood that GDP will continue growing at a relatively fast pace in the third quarter. This will also strengthen expectations that interest rates will start to increase before Q3 2016, the earliest date forecast by the MPC.”
“While Governor Carney is keen to reinforce the Bank’s forward guidance, increasing interest rates earlier than the MPC expected shouldn’t be a concern if the recovery continues to gather pace. Although the forward guidance boosts business confidence, it is only effective if the MPC remains committed to the inflation target, and does not increase QE. Any increase in QE at a time when the US considers withdrawing its stimulus could lead to a sharp fall in sterling and higher inflation, providing little benefit to exporters. Instead, we urge the MPC to consider policy measures aimed at boosting business lending. This means purchasing more private sector assets including securitized SME loans rather than just gilts.”
The minutes of the meeting will be published at 09.30 on Wednesday 18 September.