Bank of England keeps key rate at 0.5% and holds fire on QE

The Bank of England has held its key lending rate at 0.5% and resisted another round of quantitative easing amid tentative signs of an improvement in the UK’s economic outlook.

Members of the Bank’s Monetary Policy Committee (MPC) voted to keep rates at their historical low – where they have remained since March 2009 – and maintained the Bank’s quantitative easing (QE) programme at £325bn.

The decision to hold fire on additional stimulus measures comes as various economic indicators suggest the recovery is gaining momentum.

Surveys pointing to a pick-up in the services and construction sector have fuelled hopes the UK will avoid a technical recession – defined as two successive quarters of negative economic growth.

UK GDP contracted 0.3% in the final quarter of 2011, up from a previous estimate of -0.2%.

Most economists expect the UK to register modest economic growth in Q1.

But against this positive backdrop, the influential OECD recently predicted GDP fell 0.1% in the first quarter of this year – a projection which, if correct, would plunge the UK back into recession.

Minutes from the MPC’s March meeting revealed two members called for a further £25bn of stimulus.

In February, the Bank pumped an additional £50bn into the economy. This followed a £75bn increase in October.


This article was first published on Investment Week

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