Bank halts QE and holds at 0.5%
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The Bank of England has halted its £200bn quantitative easing programme and has held rates at 0.5 per cent for the 11th month.
The Bank of England says the stimulus along with the lower level of sterling and the recovery in UK export markets should support domestic activity. But it warns that credit conditions are likely to remain restrictive, while the need for significant fiscal tightening will impinge on wider economy spending.
It says: “On balance, the committee believes that the prospect is for a gradual recovery in the level of activity. The recession has probably impaired the supply capacity of the economy, but the scale and persistence of the fall in output means that a substantial margin of under-utilised resources is likely to remain for some time to come.”
Consensus from experts was that the Monetary Policy Committee would decide to hold off injecting more money into the economy after the Office of National Statistics revealed the UK officially left the recession at the end of 2009.
Legal & General director of mortgages Ben Thompson says: “We think there may well have have been a three-way split in opinion at today’s MPC meeting and it will be interesting to see the minutes when they are published. More bullish elements within the committee have been hinting that interest rate rises are to come later this year and this is looking increasingly likely.”
RBS group economics head Stephen Barber says the Bank has now done enough to help the economy turn the corner but more quatitative easing may be necessary later in 2010.
He says: “The Bank has signaled that this will be a long bend, not a hairpin turn and the risk remains that the economy could stumble again and need a further injection of steroids.”
