Bank of England holds interest rates, QE levels

07 February 2013 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 ($588.8bn, €345bn), as it waits on the results of its latest inflation report.

Defying pressure from the Organisation for Economic Co-operation and Development (OECD) for the bank to bolster the UK’s flagging economic growth with additional QE spending, the bank held back on freeing up any additional funding, despite a 0.3% contraction in the UK’s GDP in the fourth quarter of 2012.

The downturn in economic expansion, which followed a 0.9% uptick in the third quarter of last year, has fuelled fears that the UK may be about re-enter recession for the third time since the onset of the financial crash in 2008.

The bank’s latest report on inflation in the country, which can be influenced by unorthodox monetary policy measures such as QE, is due to be published on 13 February.

According to the OECD, the BoE should be ready to unlock more QE spending to buoy the UK’s economic recovery.

“Sustained monetary stimulus through expanded quantitative easing, liquidity provision by the Bank of England and government-backed funding schemes need to continue to support the economy,” said the organisation in a report on the UK economy, released on 6 February.

UK trade body the British Chambers of Commerce (BCC) has also called upon the BoE to do more to do more to combat the sluggishness of the UK economy, adding that QE may not be the best method of achieving that.

BCC chief economist David Kern said: “We believe that adding to QE would only marginally benefit the economy, while increasing longer-term risks.

“To boost growth, the Bank of England and the government should help to revive business lending, both by using QE more efficiently, and by considering tools other than QE alone,” he added.

The BoE has held interest rates at 0.5% since March 2009 and held off from additional QE spending since July 2012, when it invested an additional £50bn in stimulus funding.

($1 =
€0.75, £1 = $1.57, £1 = €1.16)

By: Tom Brown
+44 208 652 3214

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