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Bank holds rate at 0.5%; maintains QE at £375bn

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  • 06/09/2012
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Bank holds rate at 0.5%; maintains QE at £375bn
The Bank of England's Monetary Policy Committee (MPC) has voted to hold the interest rate at 0.5%.

Following its monthly meeting, the MPC also decided to maintain its quantitative easing (QE) asset purchase programme at £375bn.

The last movement from the MPC came two months ago in July, when it boosted the QE programme by £50bn.

It has held the record low base rate since March 2009, and both decisions were in line with economists’ predictions.

The Bank is expected to assess the impact of its most recent QE boost and the £80bn ‘funding for lending’ scheme (FLS) before going ahead with any further changes.

Ray Boulger, senior technical manager at John Charcol said it’s still too early to assess the impact of the FLS, but mortgage fixed rates continue to fall.

“In addition, regardless of any increased appetite to lend already engendered by FLS, it has certainly been a major catalyst for the cheaper deals, which are not just confined to mortgages requiring 40% deposit or equity.

“Libor and swap rates have fallen sharply since FLS was announced, with 3m Libor down 0.41% to 0.68%, and swap rates at or very close to all times lows. This clearly reduces lenders’ funding costs and furthermore the swap rate yield curve between 2 and 5 years is now almost flat, with 2 year rates at 0.81% and the 5 year just 0.25% higher at 1.06%.”

Boulger said in August, 25% of John Charcol clients chose a five-year fixed rate, compared to 19.4% in July, 19.4% in the first six months of this year, 17% in 2011 and only 5.7% in 2010.

 

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