UK: Interest rates remain unchanged as ‘weak’ recovery continues

The Bank of England keeps interest rates the same

The Bank of England keeps interest rates the same - Credit: PA

The Bank of England left interest rates unchanged today as it kept the City waiting on fresh measures to stimulate the recovery.

Mark Carney, governor of the Bank of England, holding the concept design for the new Bank of Englan

Mark Carney, governor of the Bank of England, holding the concept design for the new Bank of England ten pound banknote, featuring author Jane Austen - Credit: PA

Rates were held at their historic low of 0.5% and the Bank’s quantitative easing (QE) programme of pumping money into the economy remained at £375 billion.

An announcement on whether it will adopt a policy of “forward guidance” on the future path of rates will not be made until next week.

Figures last week showing that gross domestic product (GDP) growth had doubled to 0.6% eased pressure on the Bank’s Monetary Policy Committee (MPC) to take further stimulus measures this time.

But GDP remains 3.3% below pre-recession levels and the MPC has said the recovery is “weak by historical standards”.


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It means that under new governor Mark Carney, considered an activist on monetary policy, the Bank is considered likely to pursue measures to speed the upturn towards “escape velocity”.

A formal decision on whether it will adopt a policy of forward guidance - a tool used by central bankers to reassure markets about the future path of interest rates - is due to be announced next Wednesday.

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Policymakers did not repeat last month’s surprise move of issuing a statement alongside their decision - which followed the first meeting under Mr Carney’s tenure.

On that occasion, all nine members of the MPC, including the governor, voted against an increase in quantitative easing.

But they also caught markets unawares by issuing comments that indicated interest rates would not be rising from their current level for some time to come - sending share prices soaring.

It was seen as a first tentative step towards forward guidance, ahead of next week’s formal decision.

Vicky Redwood, of Capital Economics, said today’s no-change decision was always likely ahead of the forward guidance announcement - which she predicted would see the MPC commit to keep rates low until an unemployment threshold is breached.

She said the committee “might return to the QE option further ahead if the economy wobbles” but was likely to prefer to wait and see the impact of forward guidance.

Howard Archer, of IHS Global Insight, said a stream of positive signs showed - including data today from the manufacturing industry - suggested the economy was not in need of further stimulus for now.

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