No QE just yet as Bank holds rates at 0.5pc

Tim Wallace
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THE BANK of England kept interest rates on hold at 0.5 per cent yesterday, for the 30th straight month -- with analysts not predicting an increase any time soon.

Not since 1950 have interest rates remained at the same level for so long. And despite rumours that the Bank is moving in a dovish direction, it opted against more asset purchases.

“With the continued turbulence in global markets we are unlikely to see a rate increased until 2013,” said Paul Shuttleworth at BlackRock.

“The risks of a possible recession in the UK have risen, and if we continue to see slow growth it may prompt the Bank’s monetary policy committee (MPC) to undertake a further round of quantitative easing (QE).”

That is a matter for some debate, however. Since the MPC’s hawks, Martin Weale and Spencer Dale, stopped voting for a rate hike in August, and Andrew Sentance left the committee after May’s vote, expectations changed rapidly.

In such a volatile environment, predicting policy decisions months in advance is an uncertain business.

Scott Corfe, of the Centre for Economics and Business Research, believes the lack of options will force the MPC’s hand in coming months.

“There is little scope for interest rate cuts or fiscal expansion to prop up growth,” he said. “QE is the only straightforward measure policymakers have left in the short term, despite arguments that it is unlikely to solve the current economic malaise.”

That is despite inflation standing at over twice its official target. It is expected to break the five per cent mark before the end of this year.

The asset purchase programme was held at £200bn, and was last increased in November 2009.

No statement was issued by the monetary policy committee on the chances of more QE in the near future, but the minutes released at a later date could tell a different story.