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Wednesday 03rd of March 2010
February 4, 2010    

BoE expected to leave interest rates on hold and halt QE

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by Kay Murchie

The Bank of England’s Monetary Policy Committee (MPC) is today expected to keep UK interest rates on hold at the historically low level of 0.5% for the eleventh month in a row.

In addition, many analysts expect the Bank to pause its quantitative easing (QE) scheme.

Economist Allan Monks of JP Morgan said there remained a “25% chance” the MPC could opt for more QE. He adds that while he expects the Bank to hold fire on QE, it may “keep the option of further extension of QE, if needed, on the table”.

The nine-member committee was understood to be waiting for fourth quarter GDP figures and the latest inflation report before reviewing the QE scheme.

Last month, official figures revealed that the UK economy grew by just 0.1% between the October and December period, suggesting that the economy has finally emerged from its worst recession since records began in 1955.

The figures disappointed economists who had expected that the economy would grow by around 0.4%.

Meanwhile, figures last month revealed that UK inflation rose in December by 2.9% - its fastest annual pace for nine months - and above the Bank’s target of 2%.

In the meantime, there has been mixed economic news this week after the key services sector slowed in January as a result of bad weather and the VAT rise.

The latest activity index from the Chartered Institute of Purchasing and Supply (CIPS)/Markit PMI showed a reading of 54.5 in January from the 56.8 in December - however, any reading above 50 indicates growth.

The reading was less than analysts expectations of 56.5.

The figures differed to the manufacturing sector after the CIPS/Markit manufacturing PMI revealed UK manufacturing activity rose at its fastest rate in 15 years in January.

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

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