Bank of England holds UK interest rates at 0.5%, no change to QE

05 April 2012 12:00  [Source: ICIS news]

LONDON (ICIS)--The Bank of England on Thursday again held UK interest rates at 0.5% and maintained its quantitative easing (QE) programme for a second consecutive month at £325bn (€392bn, $516bn).

In March, the bank’s Monetary Policy Committee (MPC) announced it would continue its 0.5% rate and said it would not raise its QE programme after the previous month’s increase.

In February, the MPC raised its fiscal stimulus programme by £50bn from £275bn in a bid to stimulate the weak economy and boost a recovery.

The bank has focused on pumping newly created money into the economy, buying a series of assets including government bonds. In October 2011 the MPC increased its QE programme by £75bn from £200bn.

On Wednesday, chief economist at the British Chambers of Commerce (BCC) David Kern said: “The financial markets are almost unanimous in expecting no change at the MPC meeting, with interest rates being kept at 0.5% and the QE programme at £325bn.”

However, Kern added that two committee members voted at the last meeting for an increase in QE to £350bn.

“Although we have supported previous increases in QE, we feel that a further £25bn would be unnecessary as it would only have a marginal effect. There is ample liquidity in the financial system and there is no need to drive down yields on government bonds further,” he said.

“The main aim should be supporting real economic growth, by encouraging increased lending to viable businesses and making the new credit easing scheme more substantial,” added Kern.

“But the MPC should also reconsider its reluctance to include assets other than gilts, such as securitised SME [small and medium-sized enterprise] loans, in the QE programme. This will make the banks less risk averse, and will help improve the flow of lending to credit-worthy firms,” he said.

The recession forced the Bank of England into a series of interest rate cuts, with rates falling from 5.5% in October 2008 to the current level, which was set in March 2009.

On Wednesday, the ECB held its key lending rate at 1%.

($1 = £0.63, €1 = £0.83)

Additional reporting by Franco Capaldo

By: Leigh Stringer
+44 208 652 3214

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