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Bank of England resists more QE and holds base rate

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  • 12/01/2012
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Bank of England resists more QE and holds base rate
The Bank of England’s Monetary Policy Committee (MPC) has held fire on its quantitative easing (QE) programme and kept interest rates at the historical low of 0.5%.

Its decision to hold base rate at 0.5%, where it has remained since March 2009, comes as the CPI measure of inflation registered 4.8% in November 2011 – more than double the Bank’s target.

The MPC, which was widely expected to hold interest rates for the 34th consecutive month, maintained its asset purchase programme at £275bn, but economists have pencilled in a further round of QE in February amid the ongoing eurozone debt crisis.

Minutes from the MPC’s December meeting indicated a further round of QE could be imminent.

The last time the Bank extended its quantitative easing programme was back in October 2011, raising it from £200bn to £275bn.

Its decision not to increase the stimulus measure comes despite a recent warning from the British Chambers of Commerce (BCC) that the UK economy has “significantly weakened” with domestic demand diving to a two-year low.

The BCC said “urgent” action was needed to tackle short-term stagnation and a lack of business confidence due to the eurozone crisis.

Ben Thompson, managing director of Legal & General Mortgage Club, said: “The Christmas period and start to the New Year kicked off with all manner of negative predictions and forecasts, however there have been some glimmers of hope as well. These glimmers are just that, and there is a very long way to go before any fiscal tightening is required.

“However these pieces of good news, amongst other key factors will have allowed the Bank another month to fully consider all indicators in more detail before unleashing a further round of QE, which is widely expected to happen either in February or later in the year.

“For now it’s a pause, and that at least means there is no major or obvious panic, all eyes for now remain firmly fixed on the eurozone.”

 

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