April 9, 2009 / 6:09 AM / 11 years ago

Bank holds rates at 0.5 percent

LONDON (Reuters) - The Bank of England left interest rates at a record low of 0.5 percent on Thursday and said it would take two more months to complete its 75 billion pound quantitative easing programme to fight recession.

The Bank of England left interest rates at a record low of 0.5 percent on Thursday and said it would take two more months to complete its 75 billion pound quantitative easing programme to fight recession. REUTERS/Graphic

This was the first month that the central bank’s Monetary Policy Committee had left interest rates on hold since last September, having since then cut them by a total of 4.5 percentage points to tackle Britain’s first recession since the early 1990s.

It signalled last month that borrowing costs would not go any lower but it would now resort to pumping money directly into the economy — so-called quantitative easing — to boost demand, something also being done in the United States and Japan.

The Bank said it had voted to continue with the initial 75 billion pound programme to buy government and corporate debt, and would review the decision each month.

“The Committee noted that since its previous meeting a total of just over 26 billion pounds of asset purchases had been made and that it would take a further two months to complete that programme,” it said in a statement.

There was little market reaction to the decision and the brief statement which lacked much of the drama of recent BoE announcements. However, some economists said the Bank could have provided more details on its quantitative easing programme.

“(It is) no surprise they did not move the rate; I think it is bit of a missed opportunity. They could have given us some verbal intervention,” said Alan Clarke, UK economist with BNP Paribas.

“I think it’s a bit disappointing that gilt yields have given up a lot of the fall that they had in the immediate aftermath of QE.

“So they could have injected some sort of wording, determination, to keep yields down or they could have even stepped up the pace of purchase.”

BUDGET LOOMS

With benchmark interest rates near zero, the U.S. Federal Reserve, Swiss National Bank and Bank of Japan have also recently flooded their markets with cash, creating money to buy domestic debt as they try to stimulate lending.

The British economy is expected to shrink in the region of 3 percent this year despite a series of unprecedented measures to try to stem the effects of the credit crisis.

On April 22 Chancellor Alistair Darling is expected to downgrade his economic forecasts in the budget and say recovery is likely to be delayed until the end of the year.

Bank Governor Mervyn King said last month that the government should be cautious about a further fiscal stimulus because of the budget deficit.

“With (Darling) now conceding that the economy is unlikely to recover until 2010, the main function of the MPC for the rest of the year will be how to implement quantitative easing effectively,” said Stephen Gifford, chief economist at Grant Thornton.

“Printing money to buy assets will drive down long term interest rates, improve liquidity and provide the much needed stability the UK craves for,” he added.

Writing by Keith Weir; editing by David Stamp

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