Bank of England maintains Bank Rate at 0.5%

Bank of England

The Bank of England announced on Thursday that its Monetary Policy Committee (MPC) has voted to keep the Bank Rate at 0.5%.

Under the Bank’s Forward Guidance policy, the MPC had stated last August that it does not intend to raise the Bank Rate from its current level of 0.5% at least until the Labour Force Survey headline measure of the unemployment rate in the UK has dropped to a threshold of 7%.

During February 2014, unemployment neared 7% and the MPC said that there is still scope to absorb spare capacity further before raising Bank Rate, according to its policy to achieve a target of 2% inflation. This policy is intended to support the Government’s economic policies, including those for growth and employment. Depending on economic developments, the rise of the Bank Rate will be gradual in order to keep inflation close to the target. However the Bank expects the level of Bank Rate is likely to be materially below the 5% level set on average by the Committee prior to the financial crisis when the economy has returned to normal levels of capacity and inflation is close to the target.

The MPC has also decided that the stock of purchased assets financed by the issuance of central bank reserves will be held at £375bn and intends to maintain the stock of purchased assets at least until the first rise in Bank Rate.

Also, the MPC has agreed to reinvest £8.1bn of cash flows associated with the redemption of the March 2014 gilt held in the Asset Purchase Facility, in the context of guidance.

In addition, the Bank said it will continue to offer to purchase high-quality private sector assets on behalf of the Treasury, financed by the issue of Treasury bills. This decision was made in accordance with arrangements announced on 29 January 2009 and 29 November 2011

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