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Markets cheered as Bank plays down future rate rise

Mark Carney

Mark Carney’s first monetary policy committee meeting resulted in no changes to the Bank of England’s monetary policy but surprised markets by playing down the chances of an impending interest rate rise.

The Bank of England’s nine-strong committee voted today to hold the size of its quantitative easing programme at £375bn and keep rates at their historic low of 0.5 per cent.

However, the Bank cheered the markets by reassuring that it does not see scope to raise rates in the near future.

A statement by the committee says: “There have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.

”The implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy.”

The FTSE 100 jumped on the news, standing 1.84 per cent up at 6,344.59 points as of 1300 BST. 

Carney took over as the governor of the Bank of England earlier this week stepping into the shoes left vacant by Sir Mervyn King.

IHS Global Insight chief UK and European economist Howard Archer says: “We believe further quantitative easing is still more likely than not further out.

“Indeed, we believe the MPC could very well act in August. It is very possible that the MPC under Mark Carney could decide that a £25bn dosage of QE (taking the stock up to £400bn) would help recovery to become more firmly established, especially as there are still significant domestic and international (especially eurozone) headwinds facing the economy.”

Kames Capital’s fixed income manager John McNeill says: “This was Mark Carney’s first meeting as governor and any change in policy is likely to accompany the review of the Bank’s remit which will be unveiled in August. 

”Recent economic data has painted a slightly more optimistic picture of the UK economy, although historical revisions to GDP data suggest that the level of activity is even further below the 2008 peak than previously estimated.”


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