Tags: EU | Britain | Economy

Bank of England Leaves Rates, Asset Program Alone

Thursday, 04 March 2010 09:27 AM

The Bank of England took a "wait and see" stance Thursday on the country's hesitant economic recovery, holding interest rates at a record low of 0.5 percent and keeping its asset-purchase program to boost the money supply on ice.

The decision from the Monetary Policy Committee, which marks the 12th consecutive month it has held rates steady, had been widely anticipated after a month of mixed signals on the economy as Britain heads out of its worst recession in decades.

Statistics out last month showed that the economy is growing again slightly faster than thought after officially exiting recession at the end of last year — but they also revealed that the extent of the 18-month downturn was deeper than previously forecast.

"We expect the Bank of England to keep interest rates down at 0.5 percent through 2010 given likely persistent concerns about the strength and sustainability of the recovery," said IHS Global Insight economist Howard Archer. "The economy seems destined to go through many more twists and turns over the coming months."

Bank of England Governor Mervyn King has joined commentators in expressing concerns about the recovery and members of the Monetary Policy Committee have dropped hints that the bank could resume its asset-purchasing program if it fails to gain traction.

The bank halted the program, known as quantitative easing, in February after buying around 200 billion pounds of assets, mostly gilts.

A recent spike in inflation, to 3.5 percent last month, was likely a major factor in staying the bank's hand this month.

The meeting also came amid weakness of the British pound — the currency plunged below $1.50 Monday for the first time in almost 10 months amid mounting concerns that the upcoming general election will result in a hung Parliament.

But the central has said that it expects inflation to fall back below its target level of 2 percent in the second half of this year, a forecast that opens the door for the bank to resume quantitative easing if necessary.

"We doubt that the 200 billion pounds undertaken so far will be enough to ensure a strong and sustained economic recovery," said Capital Economics' senior economist Vicky Redwood. "We still think that the MPC will have to take further action."

Recent surveys showed manufacturing and services activity picking up pace and consumer confidence at its highest level for two years, but increases in sales tax and heavy snow in the first weeks of the year have hit retailers. House prices also fell again in February.

Ahead of the bank's announcement, Britain's biggest mortgage lender, the Halifax, reported that average house prices fell by 1.5 percent in February, ending a string of seven monthly increases.

Meanwhile, the Society of Motor Manufacturers and Traders said new car registrations in February were 26 percent higher than a year ago — an increase encouraged by government-backed cash incentives to trade in cars more than a decade old. Those incentives are due to end this month.

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The Bank of England took a wait and see stance Thursday on the country's hesitant economic recovery, holding interest rates at a record low of 0.5 percent and keeping its asset-purchase program to boost the money supply on ice.The decision from the Monetary Policy...
Thursday, 04 March 2010 09:27 AM
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