Interest rates to stay at 0.5 per cent

City A.M. Reporter
THE Bank of England's Monetary Policy Committee has voted to keep interest rates unchanged and make no new quantitative easing purchases in its December monthly meeting.

The decision is in line with market expectations. None of more than 60 economists polled by Reuters last week expected a change to the 0.5 per cent interest rate and £200bn of bond purchases that have been in place since February.

Despite a bailout for neighbouring Ireland, the UK’s economic outlook has changed little since November's MPC meeting.

Manufacturing activity has been strong following robust overall GDP growth of 0.8 per cent in the third quarter, but consumer price inflation has risen further above its two per cent target, to 3.2 per cent.

The BoE will not publish details of the MPC's vote or discussion until December 22, but most economists expect a repeat of last month's three-way policy split.

MPC member Andrew Sentance has said since November's meeting that he still saw a need to raise interest rates, while his dovish counterpart Adam Posen reiterated his call for an extra £50bn of asset-buying.

Most economists do not expect rates to rise until late 2011, and only see more printing of new money if looming government spending cuts cause a bigger-than-expected economic slowdown next year.

The BoE forecast last month that it would take until early 2012 for inflation to return to target, in part because value-added tax on most goods and services will rise by 2.5 percentage points in January.