Bank of England holds key interest rate as UK economy thaws

05 September 2013 12:00  [Source: ICIS news]

LONDON (ICIS)--The Bank of England (BoE) on Thursday left its key interest rate unchanged at 0.5% and maintained quantitative easing (QE) levels at £375bn ($586bn, €446bn) as the UK economy continues to show signs of recovery.

Strong economic data continued to emerge this week with the publication of the latest UK service sector purchasing managers’ index (PMI) data released by analyst Markit on 4 September showing that activity had risen at a rate of 60.5 in August. Up from 60.2 the previous month, the rate of growth was the fastest since December 2006.

The Organisation for Economic Co-operation and Development (OECD) also upgraded its 2013 GDP growth forecast for the UK this week, nearly doubling its forecast expansion rate from 0.8% in its May estimate to 1.5%.

Coupled with strong manufacturing PMI data released this week, which saw the UK manufacturing growth rate rise by 57.2, a two-and-a-half year high, there is market speculation that the UK’s economic recovery may have entered “escape velocity”, where economic growth becomes self-sustaining, rather than driven by central policy.

Commenting on the UK service sector PMI data, Markit senior economist Paul Smith said: “With sister surveys for construction and manufacturing also signalling the continuation of substantial growth, the UK is well on course to register a strengthening of GDP growth over Q3 as a whole following the 0.7% q/q [quarter-on-quarter] increase in Q2.”

The global financial crisis of 2008 prompted a series of drastic cuts to the BoE's interest rate, from 5.5% in October 2008 to 0.5% in March 2009, where it has stayed ever since.

($1 = €0.76, $1 = £0.64, €1 = £0.84)

By: Tom Brown
+44 208 652 3214

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