BoE holds both rates and QE

MONETARY policy remained frozen yesterday at ultra-loose levels as the Bank of England chose to keep interest rates at their current historic low of 0.5 per cent and maintained its target to boost the money supply at £200bn.

Despite strong economic growth in the second quarter and inflation well above the two per cent target, the decision by the nine-strong Monetary Policy Committee (MPC) was expected by City economists.

The Bank’s governor Mervyn King has stressed the need to support the recovery and ensure its sustainability. And analysts have said that loose monetary policy will help to offset tighter fiscal policy.

The British Chambers of Commerce’s chief economist David Kern said: “Given the precarious economic background, it is absolutely vital that the MPC maintains the current low level of rates until the second quarter of 2011 at the earliest.”

Economists are now looking towards next week’s Inflation Report when the Bank will publish fresh inflation and growth projections. Simon Hayes at Barclays Capital said: “I expect the August Inflation Report to paint a similarly subdued picture of the growth outlook, as the Committee factors in the additional drag that is likely to result from fiscal consolidation both here and in Europe.”

The minutes of the meeting will also be scrutinsied for further signs of dissent.