Belfast Telegraph

Thursday 23 October 2014

Interest rates held at historic low

The Bank of England has again held interest rates at a record low of 0.5%

The Bank of England has chosen not to follow US counterparts into another round of emergency measures to prop up the economic recovery.

Policymakers held interest rates at an historic low of 0.5% and resisted pressure to pump more cash into the economy, despite fears surrounding the Government's deficit-busting spending cuts announced last month.

Although there is likely to have been another three-way split in the nine-strong Monetary Policy Committee (MPC), economists suspect recent better-than-expected economic data steadied the hands of those in the no-change camp.

On Wednesday night, the US Federal Reserve unveiled a second quantitative easing programme of 600 billion US dollars (£372.8 billion) - dubbed QE2 - in a bid to kick-start the lagging recovery.

City expectations that the MPC would follow suit cooled after higher-than-expected third quarter GDP growth of 0.8%, as well as upbeat data from the manufacturing and services sectors.

The good mood was bolstered as the FTSE 100 Index hit a two-year high on the back of dollar weakness and the Halifax reported a moderate rebound in house prices following a sharp fall in September.

Analysts suspect the Bank will reveal its QE2 package early next year - possibly injecting a further £50 billion on top of the existing £200 billion - as the country starts to feels the pain of austerity measures.

The MPC has not changed rates for 19 months in a row, while it last increased QE 12 months ago, when it upped the programme by £25 billion.

Minutes of last month's MPC meeting showed that one member - Adam Posen - called for a £50 billion hike in QE, while Andrew Sentance maintained his vote for a rate hike to 0.75% to calm inflation.

Mr Posen previously warned of a potential Japan-style "lost decade" of stagnant growth if further moves are not made. But the Bank is also battling against stubbornly high inflation, which remained at 3.1% in September - well above the Bank's 2% target.

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