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Bank holds base rate at 0.5% with no more QE

Bank of England BoE Panorama 480

The Bank of England has maintained the base rate at 0.5 per cent and the asset purchase programme at £375bn.

The Bank’s Monetary Policy Committee today voted to keep the base rate at the record low level of 0.5 per cent, where it has remained since March 2009.

The quantitive easing programme has been held at £375bn. The programme has not been changed since July when it was raised by £50bn.

Many expected the MPC to increase QE this month, after the October minutes revealed the nine members were divided on whether further stimulus is required.

Schroders European economist Azad Zangana says:”Based on recent speeches, it seems the MPC has changed its view on the effectiveness of QE in boosting demand in the economy. The stronger than expected GDP figures for the third quarter will have influenced the decision, although at the same time, weaker than expected business surveys and industrial production data for September warrant caution. In addition, the inflation outlook has become less favourable with higher food price inflation and unexpected hikes in household energy bills.

“We expect today’s announcement to mark a pause in QE rather than an end to the programme. The Bank of England’s growth forecast for 2013 and 2014 remain too optimistic, which could lead the Bank to restart its asset purchase programme. However, if the Government’s Funding for Lending Scheme gains traction in boosting lending and demand in the economy, the Bank may instead favour this form of stimulus over the purchase of gilts.”

Mortgage Advice Bureau head of lending Brian Murphy says: “Although there was no change to the base rate and no addition to quantitative easing it can’t have been an easy decision for the MPC this month.

“Official figures show we’ve moved back into growth, but there are worries this might be short-lived and that the recovery is more fragile than expected. We’re still waiting to see hard figures from the Funding for Lending Scheme (FLS) – the program designed to boost the credit supply to businesses and crucially residential mortgage borrowers – but initial feedback is quite promising. Our data shows higher application activity with average rates still falling, but so far average LTVs have not been increasing.

“The next MPC announcement will take place the day after the Chancellor’s Autumn budget statement on 5 December. The proposals announced by the Chancellor will indicate how the Government feels the economy is performing and they are likely to have a significant impact on the MPC’s thinking as we head into 2013.”

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