Bank of England holds rates at 0.5pc and QE at £175bn
The Bank of England's Monetary Policy Committee made no change to monetary policy yesterday but did not rule out a further increase to its quantitative easing programme in the coming months.By Angela Monaghan
Telegraph, 10 Sep 2009
The MPC left interest rates on hold at 0.5pc for the sixth consecutive month, and voted to keep its QE spending at a total of £175bn, which should take another two months to complete, it said in a statement. "The scale of the programme will be kept under review," it added.
The decision was expected by economists, who said the MPC could vote to expand its purchase of gilts in November, timed to coincide with the Bank's next Inflation Report.
"We do not expect the Bank to make any further moves until November, when the current tranche of QE will have been used and the MPC has the opportunity to assess the situation in more detail," said Hetal Mehta, senior economic adviser to the Ernst & Young ITEM Club.
Although there have been clear indications in recent weeks that the British economy is improving, the Bank has maintained a cautious approach and emphasised on several occasions that there is no guarantee a recovery will be either strong or sustained.
That view was underlined last month when it emerged that Mervyn King, the Bank's Governor, had backed extending QE to £200bn at the August MPC meeting, but was outvoted by colleagues who preferred to raise the ceiling to £175bn. Economists will look to the minutes of yesterday's meeting, published in two weeks, to see if Mr King maintained that position.
"We do not think that there has been sufficient news over the past month for King and [fellow MPC member David] Miles to reverse their position," said Colin Ellis, economist at Daiwa Securities. "If so, that raises the prospect of a further increase... if other committee members decide to join them."
The minutes will also reveal whether the MPC discussed the possibility of imposing negative interest rates on banks' reserves, an idea which has gained traction in recently. It would in effect amount to a charge on reserves, with the hope it would encourage banks to start lending the money again and stimulate the economy, rather than hoarding cash.