The Bank of England on Thursday hinted that it was unlikely to lift record-low borrowing costs any time soon after wrapping up the first policy meeting led by its new governor, Canadian Mark Carney. The BoE's nine committee members, including Carney, voted by majority to keep the central bank's main lending rate at an all-time low point of 0.50 percent and decided also to stick by the amount of new money being used to help stimulate the British economy.
But the unexpected hint over the outlook for rates contained in a longer-than-usual final statement, issued at the conclusion of the BoE's latest monthly meeting, caused investors to offload sterling and buy British-listed shares. "The clear impression is that a Carney-led BoE has a distinctly dovish bias," said Royal Bank of Scotland economist Ross Walker. "The statement sends a clear, decisive signal - Mr Carney has not spurned an opportunity to provide early guidance, which we expect to be supplemented in subsequent months."
The British pound dived to $1.5062, the lowest point since May 29, in reaction to receding expectation of a rate hike. London's FTSE index of leading companies meanwhile soared by more than 3.0 percent in afternoon trade. Lower interest rates decrease a currency's value but can boost companies' profits. Recent yields, or rates of return, offered to buyers of government debt have risen in recent times, pointing to impending higher interest rates for consumers in general.
Joshua Raymond at trading firm City Index said that the central bank believed that the recent rise in bond yields "was not warranted" and "The key take away from the statement is that the BoE under Carney is likely to remain accommodative in the near term," he said. The BoE on Thursday also decided that its bonding-buying stimulus policy, known as quantitative easing (QE), would remain at £375 billion ($572 billion, 440 billion euros).
The decision along with the move to freeze its main lending rate had been widely expected after this week's stream of upbeat data that dispelled pressure to raise the BoE's stimulus, which is aimed at boosting lending and bolstering economic growth.
Carney began his job at the BoE on Monday, taking the reins from Mervyn King, and has since been greeted with news of impressive growth in Britain's services, manufacturing and construction sectors. "At its meeting today, the committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation," the BoE said in Thursday's statement.
Under previous chief King, markets normally had to wait two weeks following a monetary policy meeting for any explanation of the reasons behind the decisions. The BoE is to publish full minutes from this week's gathering on July 17. On Thursday it said: "In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time." Official data last week however showed that Britain's economy expanded by 0.3 percent in the first quarter of 2013, and had never experienced a double-dip recession as previously thought.
Nevertheless, the Office for National Statistics also said that the recession following the 2008 global financial crisis was far worse than previously thought. The bank's main task is to keep annual consumer price index (CPI) inflation close to a government-set target of 2.0 percent, which is some way below the current rate of 2.7 percent.
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