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Sunday 25th of April 2010
February 17, 2010    

Bank voted 9-0 to hold rates and QE programme

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by Kay Murchie

Minutes of the Bank of England’s February meeting have been released today and have revealed that the Monetary Policy Committee (MPC) voted unanimously this month to keep interest rates at the historic low of 0.5%.

Furthermore, all nine members of the MPC opted to put the brakes on the quantitative easing (QE) programme.

QE, also known as printing money, is a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital.

Interest rates have stood at the record low since March 2009, when the Bank also embarked on its QE programme. At the time, the economy was in the midst of its worst recession in more than five decades.

Meanwhile, the minutes said: “All members felt that the arguments in favour of leaving the size of the asset purchase programme unchanged at this meeting were more persuasive. But for some members, the arguments were finely balanced.”

Furthermore: “For some members, there also remained risks that adding to the size of the asset purchase programme might increase the chance of unwarranted increases in asset prices, and that attempting to eliminate the degree of spare capacity too rapidly might eventually result in more inflationary pressure.”

Yesterday the Office for National Statistics announced that Consumer Price Inflation (CPI) rose to a 14-month high of 3.5% in January.

The rise in inflation has been driven by higher petrol costs and the effects of the reduction in the standard rate of VAT.

Bank of England Governor, Mervyn King, has previously warned that inflation will rise but when inflation is one percentage point above or below the 2% target, he has to write to Chancellor, Alistair Darling, to explain why.

However, while the Bank was prepared for a 3.5% peak, Mr King believes inflation will fall back sharply later this year, to below the target.

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