Interest rates at record low for three years as Bank of England holds policy

THE BANK of England held interest rates again yesterday, extending the period at which they have been at a record low to three full years.

The Monetary Policy Committee (MPC) also decided to leave its asset purchase programme unaltered, as the £50bn in quantitative easing (QE) announced last month continues to be implemented.

QE began in March 2009, the same meeting which saw interest rates cut to 0.5 per cent.

“The MPC does not pre-commit” to future policy moves, said Nomura economist Philip Rush – in contrast to the Fed, which has indicated rates will remain low, possibly for years to come.

“Mervyn King still has a couple more months before the next step has to be decided upon and we expect the MPC to be disappointed by the pace of growth.”

“We forecast an additional £25bn of QE to be announced in May.”

However that downbeat analysis is not certain to unfold, and other economists predict no more QE.

“A double-dip recession in the UK now looks unlikely, and the loss in output seen in the fourth quarter of last year should be more than recovered in the first quarter,” said Chris Williamson from Markit.

“The Bank’s next forecast for economic growth will therefore probably be revised up, albeit cautiously, reflecting the improved economic data so far this year, but so will the forecast for inflation, due to oil prices. Given this scenario, the MPC therefore looks set to sit on its hands and not change policy for the foreseeable future.”