The Bank of England keeps rate at 0.5 per cent, as expected
Thu 04 Oct 2012
LONDON (SHARECAST) - The Bank of England’s Monetary Policy Committee (MPC) has today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 per cent. The Committee also voted to continue with its programme of asset purchases totalling 375bn pounds, financed by the issuance of central bank reserves.
Both decisions were as expected.
Commenting on the monetary authority’s decision, Simon Hayes at Barclays Research has written that: ”We continue to expect the MPC to loosen policy at its November meeting, with a £50bn extension of asset purchases and, more speculatively, a 25bp cut in Bank Rate. Our reading of the August Inflation Report was that it indicated a bias towards further loosening and we believe the economic outlook has deteriorated since then. Global activity has weakened, with the recent indicators from the euro area of particular concern, and there have been few signs of improvement in domestic demand.”
Interestingly, they add that: “High-frequency indicators suggest Q3 gross domestic product (GDP) growth was closer to the 0.5% quarter-on-quarter figure we are expecting than the 0.9% the MPC forecast in August. Also, with other central banks engaged in loosening, and sterling towards the top of its recent range, now would be an odd time for the MPC to appear hawkish. The MPC in the past has argued that the risk of injecting too much stimulus is less than that of doing too little, and we expect this argument to continue to hold sway.”
The Committee expects the announced programme of asset purchases to take another month to complete. The scale of the programme will be kept under review, it added.
The minutes of the meeting will be published at 9:30am on Wednesday October 17th.
Euro/Gbp is little changed following the decision, up by 0.12% to 0.8037.