UK interest rates held at 0.5%, QE levels maintained

04 October 2012 12:00  [Source: ICIS news]

LONDON (ICIS)--The Bank of England (BoE) on Thursday held UK interest rates at 0.5% and left quantitative easing (QE) levels at £375bn ($605bn, €469bn), as it waits for its latest round of stimulus measures to filter fully through to the economy.

The bank’s Monetary Policy Committee (MPC) is in the process of working through the £50bn increase in its QE programme announced on 5 July. The new round of QE is not expected to finish until November.

The measures are intended to help the UK economy recover by using newly created funds to purchase assets such as government bonds.

On 27 September, the Office for National Statistics (ONS) for a second time revised upwards the performance of the UK’s economy in the second quarter of 2012. Although the country remains in recession, GDP decreased by 0.4% in the second quarter of 2012, a smaller contraction than earlier estimates of 0.5%, released in August, and 0.7%, released in July.

Prior to the MPC’s meeting, David Kern, chief economist at the British Chambers of Commerce (BCC), said he expected no changes to be made this month. However, he added that in reaction to weaker global growth and worsening problems in the eurozone, the BCC expects a further £50bn increase in QE before the end of the year, probably in November.

“Such a move would be understandable in view of the expansionary policies being pursued by other major central banks, notably the US Fed and the European Central Bank,” he said.

“But we urge the MPC to be very cautious. Adding to QE could be misguided and counterproductive at the current time and should only be considered if eurozone problems pose new threats to the UK banking system,” Kern added.

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

($1 = £0.62, €1 = £0.80)

By: Franco Capaldo
+44 (0)20 8652 3214

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