Rates on hold once again

7 October 2010

Interest rates and quantitative easing were kept on hold by the Bank of England today for the 19th month in a row.

Despite moves by the Bank of Japan this week to shore up Japan's ailing economy, the Bank of England's Monetary Policy Committee (MPC) opted to make no change to the record low base rate of 0.5%.

In the lead-up to today's meeting, increasing numbers of analysts had suggested the MPC would seriously consider the possibility of increasing its quantitative easing programme.

However, despite recent calls by MPC member Adam Posen to up the amount of money pumped into the economy, the asset-purchase programme remained at £200 billion.

The decision to maintain the current level of quantitative easing is likely to have caused a split amongst the MPC - something that could be confirmed when the meeting's minutes are released.

The Committee is sure to have one eye the third-quarter GDP figures, out later this month, and the Comprehensive Spending Review before changing its course.

As fears of a double-dip recession continue to rear their head, analysts are forecasting a rise in quantitative easing in the short to medium term.

Edward Menashy, chief economist at Charles Stanley, suggested the Committee will renew the quantitative easing programme after the Comprehensive Spending Review, despite the muted response to the moves so far.

So far the effects of quantitative easing in stimulating the wider economy have not been impressive. The bank sector remains weak and unable to increase lending to companies. There are dangers that further quantitative easing could lead to major new problems rather than leading to economic recovery.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "We expect the Bank of England to keep interest rates down at 0.5% during the rest of 2010 and deep into 2011.

"Specifically, we forecast the first interest rate hike to come in the fourth quarter of 2011 and see interest rates still only at 0.75% at the end of next year."

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