Arab Today, arab today bank of england sticks to recordlow interest rates
Last Updated : GMT 07:58:19
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Bank of England sticks to record-low interest rates

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Arab Today, arab today Bank of England sticks to record-low interest rates

London - AFP

The Bank of England voted Thursday to keep interest rates at 0.50 percent, five years after slashing borrowing costs to the current record low and launching its stimulus policy. The central bank's Monetary Policy Committee (MPC) also agreed to maintain the so-called quantitative easing (QE) stimulus at £375 billion ($627 billion, 456 billion euros), it said in a statement after a monthly meeting. "The UK MPC marked the five year anniversary of the start of QE and rates at 0.50 (percent) by keeping bank rate at its historic low and maintaining asset purchases," noted HSBC economist Simon Wells. "This was widely expected and any change would have been a shock." Markets took the news in their stride, with the British pound up against the dollar but down against the euro, while London's FTSE 100 index edged higher in late afternoon trade. Shortly after the decision, the European Central Bank (ECB) also held eurozone borrowing costs at a record-low 0.25 percent. Minutes of the two-day BoE meeting, containing reasons for the decisions, will be published on March 19. ING analyst James Knightley said the bank wanted "to see monetary policy stay as loose as possible for as long as possible to ensure the economic recovery is sustainable" in Britain. "However, the strength of the growth story coupled with the robustness of the labour market means that the BoE are likely fighting a losing battle in convincing financial markets that rate hikes are a distant prospect." Martin Weale, a member of the nine-strong MPC, indicated last month that rates could begin rising next year before Britain's general election that is due in May 2015. The bank's key rate has stood at 0.50 percent since March 2009, when it also launched the QE stimulus programme to help Britain to recover from the global financial crisis. - BoE on inflation watch - Bank Governor Mark Carney took the helm at the BoE last August and launched a forward guidance policy, under which he stated that borrowing costs would not be lifted until the British unemployment rate falls to at least 7.0 percent. But after unemployment fell faster than expected to just above 7.0-percent, he recently delivered amended guidance. This states that the BoE will seek to absorb all the spare capacity in the economy as it looks to keep inflation close to a government-set target of 2.0 percent, before moving to hike its key lending rate. Britain's 12-month inflation slowed to 1.9 percent in January, the lowest level for more than four years, recent data showed. The Bank of England meanwhile last month ramped up its economic growth forecasts for Britain. Gross domestic product (GDP) is set to grow by 3.4 percent this year, the central bank said in its latest quarterly report. That is up sharply from an earlier estimate of 2.8 percent. The economy expanded last year at the fastest annual rate since before the 2008 global financial crisis, growing by 1.9 percent. There are fears however of a fresh property price bubble, which some analysts say could trigger an interest rate hike this year. Britain is a member of the European Union, but not of the eurozone, so retains responsibility for its monetary policy. Although the central bank has a high degree of independence, it answers in the last resort to the government.

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