Bank of England Keeps Benchmark Interest Rate at Record Low
The Bank of England kept its benchmark interest rate at a record low as signs the recovery is losing momentum kept a majority of policy makers focused on stimulating growth during the government’s fiscal squeeze.
The nine-member Monetary Policy Committee (MPC), led by Governor Mervyn King, held the key rate at 0.5 per cent, as forecast by all 43 economists in a Bloomberg News survey. The bank also left its bond-purchase programme at GBP200 billion (US$330 billion), as forecast by 29 economists in a separate poll.
The economy stalled over the fourth and first quarters, and surveys this week showed services, manufacturing and construction growth moderated in April. Officials are split on whether the government’s spending cuts to reduce the budget deficit will be enough to tame an inflation rate that is double the central bank’s 2 per cent target.
“The economic data are sufficiently concerning for the MPC that they’re willing to sit on their hands for now and leave policy where it is,” Philip Rush, an economist at Nomura International Plc in London, said before the announcement. “That doesn’t prevent rate hikes from becoming appropriate soon. There are enough inflation pressures coming through that it seems hard to imagine they’ll wait much longer.”
The pound remained higher against the dollar after the announcement and was at US$1.6504 as of 12:01 pm, up 0.1 per cent on the day. Bonds declined, with the yield on the 10-year gilt up 3 basis points at 3.41 per cent.
Monetary policy elsewhere is becoming tighter. The Philippine and Malaysian central banks Thursday increased interest rates, and India raised rates this week for the ninth time since March 2010. The cost of borrowing in China, Asia’s biggest economy, may rise further after its central bank said this week that taming inflation is its top priority.