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Sunday, 10 April 2011

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Bank of England holds interest rate at record-low

The Bank of England voted to keep its key lending rate at a record-low 0.50 percent on Thursday, in contrast to the ECB which hiked eurozone borrowing costs for the first time in nearly three years.

"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%," the BoE said in a brief statement after a two-day policy meeting.

Shortly after, the European Central Bank (ECB) announced its first interest rate hike since July 2008 from an all-time low of 1.0 percent to 1.25 percent aimed at tackling high inflation across the eurozone. Inflation is even higher in Britain but because its recovery from recession has stalled, the BoE is adopting a wait-and-see approach before embarking on its own policy of rate tightening.

"The need for the Bank of England to counter inflation by raising interest rates is being confounded by continued weakness in the UK economy," said Scott Corfe at the independent Centre for Economics and Business Research. "Tightening monetary policy too soon could lead to a further weakening in consumer spending as household incomes are squeezed by higher mortgage interest payments and an increased rate of borrowing.

"Despite this, a rise of 25 basis points in May cannot be ruled out," Corfe added.

The BoE also decided on Thursday against altering its stimulus programme, known as Quantitative Easing (QE), under which it has injected 200 billion (235 billion euros, $322 billion) into the economy. The latest announcements were in line with market expectations. Official minutes from the Monetary Policy Committee (MPC) meeting will be published on April 20, when the reasons behind the decisions will be disclosed. -AFP

 

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