The Bank of England voted Thursday to keep its main interest rate at 0.50 percent, where it has stood for more than four years under the guidance of departing Governor Mervyn King. Also at King's last meeting, the central bank decided against creating more cash under its Quantitative Easing (QE) programme that is aimed at supporting Britain's fragile economic recovery.
"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the central bank said following an ordinary two-day meeting. "The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion ($580 billion, 442 billion euros)."
Minutes of the monthly meeting, explaining the reasons behind the voting pattern of the Committee's nine members including King, will be published on June 19, the statement added. Meanwhile King, who has led the Bank of England for a decade, will at the end of the month make way for Mark Carney, who last week stepped down as governor of the Bank of Canada.
The BoE has kept its main interest rate at a record-low 0.50 percent - and has pumped a total of £375 billion into Britain's economy under QE - since early 2009 in the wake of the global financial crisis. "The recent improvement in UK economic indicators meant there was no reason for any MPC member to start calling for more easing," said HSBC economist Simon Wells.
"If the recovery gathers pace, the debate could switch from whether more easing is needed to how long policy can remain as loose as it is. "We think the new governor, Mark Carney, will want to commit to keeping policy loose even after a solid upturn. Mr Carney is arriving when things are looking up and won't want to risk killing off a recovery." With Britain's recovery firming slightly, the BoE could decide in coming months to withdraw some of its huge stimulus amount or even consider hiking rates once more.
Under QE, the Bank of England creates cash that is used to purchase assets such as government and corporate bonds with the aim of boosting lending and in turn economic activity. QE can stoke inflation however as it is tantamount to printing money and although the British economy escaped a return to recession in the first quarter, the country stands a long way from producing strong growth according to market watchers.
Britain expanded by 0.3 percent in the first quarter of 2013, recent official data showed, returning to growth and avoiding its third recession since the 2008 global financial crisis. Gross domestic product (GDP) grew in the January-March period, after falling by 0.3 percent in the final three months of 2012.
That still left the economy essentially flat over the past six months, but it did avoid entering recession - which is defined as two consecutive quarters of shrinking economic activity. The central bank's principal task is to use monetary policy as a tool to keep annual inflation close to a government-set target level of 2.0 percent, in order to preserve the value of money.
British 12-month inflation slowed to 2.4 percent in April, hitting a seven-month low point on the back of falling transport costs and oil prices, official data showed. The BoE has meanwhile forecast that the economy is set to grow faster than expected in the coming months, while stressing the weak nature of the recovery.
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