Bank of England keeps interest rates at 0.5% and holds back from further QE

The Bank of England has maintained UK interest rates at 0.5% and also announced yesterday that it will not be extending its programme of quantitative easing (QE).

Rates have been held at a record low of 0.5% for three years.

Economists said that the decision by the Bank of England’s Monetary Policy Committee (MPC) was likely to have been close. Ian McCafferty, the CBI’s chief economic adviser, commented that another round of QE could not be ruled out but noted that the recovery is expected to be on a firmer footing in the second half of the year, as inflation eases and the global economy strengthens.

Minutes from last month’s MPC meeting showed that members of the committee were becoming more concerned about inflation, with the Consumer Prices Index (CPI) measure rising to 3.5% in March, from 3.4% in February. The Bank of England’s target rate for CPI inflation is 2% but it has been higher than this for 28 months, and according to the Telegraph most economists no longer believe that it will fall to 2% before the end of the year.

The minutes from April’s meeting also revealed that one member of the committee dropped his vote for more QE. This scheme, which is intended to boost the economy through buying bonds, was boosted to GBP325bn in February.

Confirmation that the economy appears ready to grow again came yesterday in a new report from the OECD, which said that the UK’s composite leading indicators – designed to anticipate turning points in economic activity – are showing stronger positive signals compared to the previous month’s assessment.