Belfast Telegraph

Saturday 30 August 2014

Bank of England keeps interest rates at 0.5%

The Bank of England ended the year as it began, leaving its emergency support for the economy unchanged.

Policymakers held interest rates at 0.5% for the 20th month in a row and maintained money-boosting efforts at £200bn under the Bank's quantitative easing (QE) programme.

Stronger-than-expected economic growth and an improved performance in the manufacturing sector in recent months has steadied the Bank's hands, despite expectations of a slowdown in the pace of recovery in the months ahead.

The Bank of England last altered its monetary policy in November 2009, when it increased the level of QE from £175bn to £200bn. Interest rates were set to their historic low of 0.5% in March 2009.

The Monetary Policy Committee (MPC) was widely expected to leave policy unchanged following higher-than-expected third-quarter gross domestic product (GDP) growth of 0.8%.

The good mood was bolstered by strong official manufacturing figures earlier this week, showing output rose 0.6% month-on- month in October - the best reading since March and double expectations in the market. But uncertainty returned as the UK's net trade - the difference between exports and imports - widened unexpectedly, knocking hopes for a private sector-led recovery.

And inflation has also been stubbornly high - rising to 3.2% last month - which has prompted repeated calls from one MPC member for a quarter-point rise in interest rates.

The escalating debt crisis in the eurozone is another factor likely to have been discussed at the MPC meeting, as struggling countries on the continent could affect the UK's export trade and subsequent growth. Economists expect another three-way split among the nine-strong MPC this month, with Andrew Sentance likely to vote for a rise in interest rates and Adam Posen expected to favour a second injection of QE.

Despite recent economic cheer, there are still concerns over the path of recovery over the year ahead. While the third quarter GDP growth was better than expected, it represented a marked slowdown from the 1.2% in the second quarter.

The Bank of England and the Office for Budget Responsibility, the independent tax and spending watchdog, both forecast a further decline in economic growth in the fourth quarter and next year.

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