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October 6, 2010    

BoE expected to keep interest rates on hold tomorrow

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by Kay Murchie

The Bank of England’s Monetary Policy Committee (MPC) is tomorrow expected to keep UK interest rates on hold at the historically low level of 0.5% for the 20th consecutive month.

Many economists expect no movement on interest rates until early 2011.

However, in terms of quantitative easing programme (QE), Bank of England policymakers, Adam Posen and Martin Weale, have recently suggested injecting more cash into the economy, via the QE scheme.

According to Posen, more stimulus is required to help the recovery and to avoid a similar kind of slump which Japan experienced in the 1990s.

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.

The Bank embarked on its £200 billion QE programme in March 2009, when the economy was in the midst of its worst recession in more than five decades.

Meanwhile, policymaker Andrew Sentence is again expected to vote for rates to rise from their historic low, because of concerns about inflationary pressures.

Returning to the QE programme, the Institute of Directors (IoD) echoes the views of Adam Posen and Martin Weale and thinks the Bank should inject a further £50 billion into the economy.

Graeme Leach, IoD chief economist, said: “Monetary policy needs to help ensure a sustainable recovery is in place before the public sector recession begins.”

However, many economists believe the Bank will refrain from further QE - for the time being.

The Bank of England will announce its decision at 12.00pm tomorrow.

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