BoE keeps interest rates and QE on hold

| May 10, 2010

The Bank of England’s Monetary Policy Committee (MPC) has today elected to keep UK interest rates on hold at the historically low level of 0.5% for the 14th consecutive month, amid the ongoing election turmoil.

The rate-setting meeting was due to be held on 5 and 6 May but was held last Friday and concluded today, as a result of last week’s General Election.

The MPC would have no doubt had much to discuss, particularly as the UK is faced with a hung parliament, which threatens to undermine the UK’s fragile economy, according to many financial experts.

The Conservative party, led by David Cameron, and the Liberal Democrats are attempting to reach a deal after last week’s election resulted in the first hung parliament in 36 years.

In the meantime, the Bank opted not to inject any more funds into the economy via its quantitative easing (QE) scheme – introduced to stimulate growth within the economy.

In February, the Bank announced it was pausing its QE programme – having already injected £200 billion into the economy to bring it out of recession.

Last month, the Office for National Statistics revealed the UK economy grew by 0.2% in the January to March period – just half analysts’ expectations of 0.4%.

However, the UK struggled with severe winter weather during the first three months of the year, possibly adversely affecting growth in retail and industrial sectors in particular.

In the meantime, the latest official figures show the UK’s rate of inflation rose to 3.4% in March, up from 3% in February, exceeding the Government’s target of 2%.

The rate, which is based on the Consumer Prices Index (CPI) nudged towards the 14-month high of 3.5% recorded in January.

The CPI inflation rate is a benchmark for the Bank of England’s MPC.

Earlier this year, the Bank’s Governor, Mervyn King, dismissed fears that soaring inflation that would demand a significant rise in interest rates in the months ahead, saying that inflation was likely to fall back to its 2% target in the second half of 2010, and then fall further.

With the outlook unchanged, interest rates are expected to remain at or near the current historic low of 0.5% in the short-term.

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