BoE expected to keep interest rates and QE on hold

| November 3, 2010 | 0 Comments

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%, where they have been since March 2009.

Furthermore, it is expected to hold off, for the short-term at least, with its quantitative easing (QE) programme.

Recent strong data from the British economy suggests that the Bank will delay injecting more money into the economy by way of its 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.

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

Mr Sentance has, at the last four rate-setting meetings, voted for the base rate to be lifted and he recently warned that the Bank faces losing its credibility if it is not seen to be fighting inflation – which at 3.1% has been above the 2% target for ten consecutive months.

The Bank of England commenced its two-day rate setting meeting today and its announcement for interest rates and QE will be given at 12.00pm tomorrow.

In other news, US central bank, the Federal Reserve, has today announced it will introduce a fresh round of stimulus.

The move was widely expected after concerns for the US economic recovery amid low inflation and rising unemployment.

The Federal Open Market Committee (FOMC) has agreed to inject an additional $600 billion (£373 billion), albeit higher than the $500 billion expected by many economists.

The move will see the bank buy up Treasury debt at a rate of $75 billion a month – a policy which has been branded “QE2“.

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