Interest rates held at 0.5%
Interest rates have been held at their record low of 0.5% for the 17th successive month by the Bank of England's Monetary Policy Committee (MPC).
Quantitative easing was also kept static at £200 billion by the Committee.
The largely expected move came despite upbeat GDP figures recently showing 1.1% growth in the second quarter for the UK's economy.
It also flew in the face of MPC member Andrew Sentance who had expressed the view that policy needed tightening to help battle rising inflation.
However, with consumer confidence falling to a 12-month low and a fall in the purchasing managers' index, concerns remain that the second half of the year will see a moderate deterioration in the economic recovery.
Howard Archer, chief UK and European economist at IHS Global Insight, said he expects rates to remain low for some time.
"Monetary policy will need to remain loose for an extended period to offset the impact of the major, sustained fiscal squeeze," he added.
August's two-day meeting was the first for new MPC member Martin Weale, who replaced Kate Barker who left in May. Weale's appointment makes it the first time in its 13-year history that the entire Committee is all-male.
Lower interest rates encourage people to spend, not save. But when interest rates can go no lower and there is a sharp drop in consumer and business spending, a central bank’s only option to stimulate demand is to pump money into the economy directly. This is quantitative easing. The Bank of England purchases assets (usually government bonds, or gilts) from private sector businesses such as insurance companies, banks and pension funds financed by new money the Bank creates electronically (it doesn’t physically print the banknotes). The sellers use the money to switch into other assets, such as shares or corporate bonds or else use it to lend to consumers and businesses, which pushes up demand and stimulates the economy.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).