Bank of England holds back on changes to QE level, interest rates

04 April 2013 12:04  [Source: ICIS news]

LONDON (ICIS)--The Bank of England (BoE) on Thursday left its key interest rate unchanged at 0.5% and left quantitative easing (QE) levels at £375bn (€443bn, $566bn), as new UK service sector data indicates that the country may have dodged a triple-dip recession.

BoE held back from increasing QE levels, despite growing market expectation that it may be required to take a more active role in aiding the weak UK recovery, as a result of data from the Office for National Statistics (ONS) that the country’s GDP contracted by 0.3% in the fourth quarter of 2012.

However, service sector data released by information company Markit on Thursday showed that new business volumes in March 2013 grew at the strongest rate since May 2012, as business confidence rose to a 10-month high.

The healthier-than-expected growth, in spite of a protracted spell of cold weather, indicates that the UK may have avoided the third return to recession since the financial crisis began in 2008.

Chris Williamson, Markit’s chief economist, said: “The government and Bank of England will breathe sighs of relief in seeing signs of a gathering upturn in the service sector during March, which looks set to have helped the UK avoid a triple-dip recession  by the narrowest of margins.”

The British Chambers of Commerce (BCC) predicted last month that UK interest rates would remain at 0.5% until the fourth quarter of 2014, and then to rise modestly, to 0.75% in first quarter of 2015, and to 1.00% in second quarter of 2015.

The news about BoE’s rates decision comes shortly after the Bank of Japan announced an aggressive new programme of QE spending, of around Japanese yen (Y) 7,500bn (€62.9bn, $80.8bn) per month from April this year.

($1 = €0.78, £1 = €1.18, £1 = $1.51, $1 = Y92.86, €1 = Y119.26)

By: Tom Brown
+44 208 652 3214

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