Bank of England maintains interest rates and QE programme

By Natasha Roberts

Date: Thursday 07 Mar 2013

The Bank of England (BoE) has refrained from further easing to boost the UK economy, and kept interest levels at their record low.

At noon, the BoE revealed that policy-makers had voted to maintain interest rates at 0.5% (where they have been since March 2009), while keeping its asset purchase programme unchanged at £375bn.

This was despite the BoE's Govenor, Sir Mervyn King, voting for more economic stimulus at last month's meeting.

In a vote to increase quantitative easing to $400m, he was one of three Monetary Policy Committee members to give his backing.

Ben Thompson, the Managing Director of Legal & General Mortgage Club, said: "We are seeing the early signs of a recovery but it needs to be nurtured. Things are a little brighter and certainly better than a few years ago but we are some way from being 'normal.’ Base rate has stayed flat yet again at 0.5%, we are approaching half a trillion of quantitative easing in the system equating to £12,613.52 per head for every UK worker and 40 or so Banks and Building Societies are being heavily supported via the Funding for Lending Scheme.

"Nearly 320 years ago, it took the princely sum of £1.2m to effectively establish the Bank of England. This was done in the form of a loan to the government at the time. Over the last six years alone, significant money has been spent on first propping up and then stimulating the UK economy - in fact more pounds have been spent on keeping the UK banking system and economy going through this period, than total seconds have passed since the Bank was first established in 1694.

"With that in mind it feels important to not provide too much ‘medicine’ in the shape of quantitative easing. However, of equal importance is for the Bank to give the tentative recovery every chance. We very much need this to continue and strengthen, and low borrowing costs for yet another month will do no harm whatsoever."

The pound reacted positively to the news, having dropped below the $1.50 mark before the announcement.

Glenn Uniacke, the Head of Options at foreign exchange specialist Moneycorp, said: "The pound immediately jumped by nearly a cent against the dollar as the markets breathed a sigh of relief that the expected QE did not happen.

"The outgoing Governor has become increasingly outspoken in his calls for a loosening of monetary policy, so the markets had both predicted, and priced in, an extra burst of money printing.

"Had the QE taps been opened further, the pound could easily have pushed on to a three-year low against the dollar.

"The news that the money presses will be allowed to gather dust for another month will halt sterling's slide for now, but conflicting data about the state of the economy mean the jury is still out on whether the UK has returned to growth in the first quarter. The pound's prospects still hang in the balance."

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