Bank of England keeps interest rates at 0.5%

The Bank of England (BoE) has kept interest rates at 0.5 per cent and has also held off on more stimulus measures.

Its rate-setting Monet…

The Bank of England (BoE) has kept interest rates at 0.5 per cent and has also held off on more stimulus measures.

Its rate-setting Monetary Policy Committee (MPC) has voted to maintain rates at this historic low for three years.

For its part, the European Central Bank in Frankfurt also kept eurozone interest rates unchanged at 0.75 per cent.

The BoE also decided not to increase its programme of quantitative easing (QE), having lifted it by £50 billion earlier this summer in July to £375 billion.

This decision to hold rates and QE hasn't come as a real shock to the industry following last month's vote and Inflation Report.

BoE's quarterly Inflation Report forecast zero growth in August as the double-dip recession and the eurozone crisis continues to hit the economy.

Many analysts now believe the Bank will wait until November to assess the impact of the last round of QE and will pump more money into the economy if needed. The UK has now been in recession for the last three quarters.

Chief economist at Santander UK Barry Naisbitt said the MPC is likely to continue to watch the economic signs closely to decide whether more QE will be required later this year.

"Despite the survey indicators showing a pick up in service sector activity in August, the general tone of the activity indicators is weak and the UK economy has now seen three successive quarters of falling output," he continued.

Economic advisor to the Ernst & Young ITEM Club Nida Ali agreed that this decision was no surprise as MPC members are currently in "wait-and-see mode".

"The Bank has not indicated any intention to loosen policy further in the future, but may be forced to provide greater support if the eurozone crisis worsens," she remarked.

Posted by Paul Thacker

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