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No more QE and base rate held at 0.5%

The Bank of England’s Monetary Policy Committee has held base rate at 0.5 per cent for the twenty-first month in a row and has also held its quantitative easing programme at £200bn.

The previous change in base rate was a cut from 1 per cent to 0.5 per cent on March 5, 2009.

A programme of asset purchases financed by the issuance of central bank reserves was initiated on March 5, 2009. The most recent change in the size of that programme was an increase of £25bn to a total of £200bn on November 5, 2009.

Legal & General director of mortgages Ben Thompson says: “The Bank could easily just have decided to hibernate for the winter and make the simple decision that BBR does not need to change.

“In amongst the bad weather and other adverse news, there has been some great manufacturing results and some positive noise in terms of Christmas spending, however nothing like enough to provoke any discussions about rate changes. The Bank’s Christmas present to us all this year is not to raise the cost of borrowing, and it probably won’t in 2011 at all.”

John Charcol senior technical manager Ray Boulger says: “Despite some reasonably encouraging news from the UK manufacturing sector over the last few months the fiscal tightening already announced will progressively impact on consumers and it makes no sense to tighten monetary policy yet, despite the probability that inflation will spike higher before falling back to the target range.”

But he believes another round of quantitative easing is likely next year, as the crisis in the Eurozone is brought to bear on the UK.

He adds: “As the markets continue to pick off one Eurozone country after another, with exposed banks ultimately having to write off more bad debts as ’mark to make believe’ accounting can no longer be used to hide the problems, the potential negative impact on the UK economy is very worrying. All this increases the likelihood that QE2 will need to sail next year.”

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