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BOE Keeps Interest Rate at 0.5%

ByInternational Business Times
Published 01/13/2012, 09:04 AM
Updated 05/14/2017, 06:45 AM

The Bank of England is hinting that it will increase its quantitative easing programme, saying it is being "kept under review".

The bank's Monetary Policy Committee (MPC), chaired by the bank's governor Sir Mervyn King, voted to keep interest rates at 0.5 percent and continue its £275bn asset purchase programme, also known as quantitative easing.

High-quality assets are being bought by the bank, which creates the money with which to buy them, in order to maintain liquidity in the markets.

This scheme originally cost £200bn but was increased by £75billion in October.

The whole asset purchase programme will be complete in early February.

"Today's decision by the MPC to leave monetary policy unchanged was expected, since the current round of asset purchases is not yet complete," said Ian McCafferty, chief economic adviser for the Confederation of British Industry.

"But with economic conditions fragile and inflation expected to undershoot, the MPC appears to be signaling that a further extension of the asset purchase programme is likely in the months ahead."

Inflation stands at 4.8 percent, more than double the government's 2 percent target.

The Bank of England says inflation will fall sharply in 2012, before possibly falling below two percent by the end of the year. Critics of quantitative easing argue that it pushes inflation up, so any move to extend the asset purchase programme as inflation starts to fall is likely to be met with hostility in some quarters.

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