BoE holds interest rates and stops quantitative easing

| May 10, 2012 | 0 Comments
BoE holds interest rates and stops quantitative easing

The Bank of England is holding the base rate at 0.5 per cent and has decided not to extend its quantitative easing (QE) programme following a £50bn boost to the economy in February.

The UK interest rate has now remained at 0.5 per cent for three years, despite high levels of inflation.

Consumer Prices Index inflation currently stands at 3.5 per cent and has exceeded the government target of 2 per cent for more than two years.

At its April meeting, the Bank of England’s Monetary Policy Committee (MPC) decided not to extend the QE programme because of concerns about inflation.

News that the UK economy has fallen back into recession and deterioration in the eurozone crisis had led to calls for a further round of QE to be implemented.

However, the MPC decided that ongoing high levels of inflation outweighed the risk of a prolonged recession.

Despite the UK economy falling back into recession in the first quarter of 2012, many economists are confident that overall growth will be achieved over the year.

The governor of the Bank of England, Sir Mervyn King, recently said that the bank should have taken stronger action to help prevent the 2008 financial crisis.

At the recent 2012 Today Programme Lecture in London Sir Mervyn said that the bank did try to warn that risks were being underestimated in financial markets but not strongly enough.

It ‘should have shouted from the rooftops,’ he said.

He called for reforms to be implemented to protect the economy from failures in the banking system.

From next year, banks will be regulated by the BoE’s new Financial Policy Committee.

Sir Mervyn said that three reforms will be prioritised - regulation, resolution and restructure.

“The three R’s will be central to the work of the BoE.

“And all of that will come on top of our responsibility for monetary policy to reduce inflation while supporting a gradual recovery of our battered economy.

“It is the biggest challenge the bank has faced for decades,” he said.

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