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Bank Rate to stay 0.5% until 2016; MPC “sees merit” in FLS extension

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  • 17/04/2013
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Bank Rate to stay 0.5% until 2016; MPC “sees merit” in FLS extension
Top Bank of England economists expect Base Rate to stay at 0.5% until 2016, with the Committee also agreeing any extension to the Funding for Lending (FLS) Scheme would boost lending further.

The Minutes of the March Bank of England Policy Committee meeting revealed Overnight Interest Swap rates project Bank Rate to hold at its current level until 2016.

“There had been little change in short term monetary conditions in the United Kingdom and policy was expected to remain highly stimulatory for some years,” said the Minutes.

The Bank’s economists agreed stimulus from the FLS and the asset purchase programme were likely to support a gradual recovery, despite subdued lending figures.

The same benchmark revealed UK banks and building societies had a collective
capital shortfall at the end of 2012 of around £25bn, although the figure did little to unsettle the markets.

The Committee also noted and agreed with the FCA’s recommendations seeking to improve the capital adequacy of the major UK banks and building societies by the end of 2013.

“A well capitalised banking system was essential to improving the supply of
credit and the supply capacity of the economy in the medium term,” it said.

Inflation was above the 2% target and likely to rise further later this year, and remain elevated for an extended period, said the Committee.

In the end, the Committee agreed unanimously to maintain Rate at 0.5% with three members of the Committee voting against retaining asset purchase at its current level. The Governor Mervyn King (pictured), Paul Fisher and David Miles voted to raise it £25bn to £400bn.

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