John
06-10-2010, 05:07 PM
The Bank of England decided on Thursday to leave its key interest rate at a record low point of 0.50 percent, a level that has stood for 16 months, despite soaring inflation.
Shortly after the decision was published, the European Central Bank announced it had decided to freeze eurozone borrowing costs at 1.0 percent.
"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the BoE said in a statement after its latest monthly meeting.
The central bank also said that it had decided not to alter its so-called quantitative easing policy, under which it has pumped 200 billion pounds of new money into the British economy.
As is customary when no change is made, the BoE gave no indication of the reasoning behind the decisions, which were in line with analyst expectations.
Market watchers will have to wait until June 23 for the publication of minutes from the meeting, which began on Wednesday.
"This move to keep the monetary policy stance unaltered is in spite of inflation reaching 3.7 percent in April, almost double the target rate of 2.0 percent," noted Benjamin Williamson, senior economist at the Centre for Economic and Business Research.
Although recent official data showed that 12-month inflation hit a 17-month high point in April, Bank of England governor Mervyn King blamed temporary factors and forecast the figure would drop this year.
Consumer Price Index (CPI) 12-month inflation, the government's target measure, hit 3.7 percent last month for the highest level since November 2008, according to the Office for National Statistics.
The BoE is tasked by the government with trying to keep the rate at 2.0 percent.
Britain's biggest employers' organisation, the CBI, said the Bank of England was sitting tight as it awaited more information on the fragile economic recovery.
"The Bank is clearly waiting to see how the recovery develops, and the situation remains finely balanced. We expect the economy to grow modestly this year," said the CBI's chief economic adviser Ian McCafferty.
New Prime Minister David Cameron on Monday said the state of Britain's finances was "even worse than we thought" as he warned of "painful" and unavoidable cuts to tackle the record deficit.
Britain meanwhile needs to put its public finances in order much quicker as it faces a "formidable" fiscal challenge after an unprecedented shock to the economy, Fitch Ratings warned on Tuesday.
Fitch said that "following an unprecedented economic and financial shock, the scale of (Britain's) ... fiscal challenge is formidable and warrants a strong medium term consolidation strategy -- including a faster pace of deficit reduction than set out" in April by the previous Labour government.
The international ratings agency, looking ahead to the new government's June 22 emergency budget, did not comment directly on the outlook for Britain's top AAA rating but noted that debt had risen very fast since 2008.
Britain chalked up a public deficit equal to 11.1 percent of gross domestic product (GDP) in the fiscal year to March 2010, one of the largest in the European Union and way above the EU limit of three percent.
Back in March 2009, the Bank of England cut interest rates to a record low 0.50 percent in an attempt to breathe life into the battered economy.
The bank also decided that month to launch quantitative easing, whereby it buys bonds from commercial institutions in a bid to help boost lending.
The BoE froze the radical QE policy in February but has not ruled out an extension to the scheme.
Shortly after the decision was published, the European Central Bank announced it had decided to freeze eurozone borrowing costs at 1.0 percent.
"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the BoE said in a statement after its latest monthly meeting.
The central bank also said that it had decided not to alter its so-called quantitative easing policy, under which it has pumped 200 billion pounds of new money into the British economy.
As is customary when no change is made, the BoE gave no indication of the reasoning behind the decisions, which were in line with analyst expectations.
Market watchers will have to wait until June 23 for the publication of minutes from the meeting, which began on Wednesday.
"This move to keep the monetary policy stance unaltered is in spite of inflation reaching 3.7 percent in April, almost double the target rate of 2.0 percent," noted Benjamin Williamson, senior economist at the Centre for Economic and Business Research.
Although recent official data showed that 12-month inflation hit a 17-month high point in April, Bank of England governor Mervyn King blamed temporary factors and forecast the figure would drop this year.
Consumer Price Index (CPI) 12-month inflation, the government's target measure, hit 3.7 percent last month for the highest level since November 2008, according to the Office for National Statistics.
The BoE is tasked by the government with trying to keep the rate at 2.0 percent.
Britain's biggest employers' organisation, the CBI, said the Bank of England was sitting tight as it awaited more information on the fragile economic recovery.
"The Bank is clearly waiting to see how the recovery develops, and the situation remains finely balanced. We expect the economy to grow modestly this year," said the CBI's chief economic adviser Ian McCafferty.
New Prime Minister David Cameron on Monday said the state of Britain's finances was "even worse than we thought" as he warned of "painful" and unavoidable cuts to tackle the record deficit.
Britain meanwhile needs to put its public finances in order much quicker as it faces a "formidable" fiscal challenge after an unprecedented shock to the economy, Fitch Ratings warned on Tuesday.
Fitch said that "following an unprecedented economic and financial shock, the scale of (Britain's) ... fiscal challenge is formidable and warrants a strong medium term consolidation strategy -- including a faster pace of deficit reduction than set out" in April by the previous Labour government.
The international ratings agency, looking ahead to the new government's June 22 emergency budget, did not comment directly on the outlook for Britain's top AAA rating but noted that debt had risen very fast since 2008.
Britain chalked up a public deficit equal to 11.1 percent of gross domestic product (GDP) in the fiscal year to March 2010, one of the largest in the European Union and way above the EU limit of three percent.
Back in March 2009, the Bank of England cut interest rates to a record low 0.50 percent in an attempt to breathe life into the battered economy.
The bank also decided that month to launch quantitative easing, whereby it buys bonds from commercial institutions in a bid to help boost lending.
The BoE froze the radical QE policy in February but has not ruled out an extension to the scheme.