Bank of England: no change in rates, stimulus

AP News
Posted: Jun 07, 2012 9:35 AM
Bank of England: no change in rates, stimulus

The Bank of England kept its base interest rate at the all-time low of 0.5 percent Thursday and chose not to approve any additional monetary stimulus, despite worries over Britain's sluggish economy.

With the U.K. economy officially in recession after two quarters of shrinking gross domestic product, some analysts had suggested that the committee may have been tempted to approve additional stimulus.

The announcement from the Bank's Monetary Policy Committee means the country's stimulus program of asset purchases remains at a total of 325 billion pounds ($524 billion).

The International Monetary Fund last month urged both Britain's coalition government and the central bank to do more to boost economic activity. Minutes released on recent committee meetings show that debate over stimulus has been finely balanced, though last month only one of the nine members voted to expand the program of asset purchases, known as quantitative easing.

Details of voting on the latest decisions will be disclosed when minutes are published on June 20.

Howard Archer, European economist at IHS Global Insight, said "it may well have been a very close call" on whether to approve additional stimulus.

"We suspect that it will not take much more bad news on the growth front for the (committee) to pull the quantitative easing trigger again and it could even happen as soon as July if the economy fails to show any underlying improvement, or events in the eurozone take a further turn for the worse and affect U.K. sentiment and activity," Archer said.

The base rate has been at 0.5 percent since March 2009, when the Bank also launched the stimulus program of buying government bonds and other high-quality assets.

The MPC last approved a round of stimulus in February worth 50 billion pounds, taking the total since March 2009 to 325 billion pounds.

Some analysts suspected poor retail data, which showed sales fell sharply in April as Britain suffered heavy rainfall, could have nudged the committee toward new monetary stimulus.

Anna Leach, the Confederation of British Industry's head of economic analysis, said the decision at this month's meeting was likely a tricky one.

"It seems that a `wait and see' position has been adopted for the moment. The ongoing crisis in the euro area will continue to put pressure on fragile business conditions for the foreseeable future," she said.

Philip Shaw, chief economist at Investec, said he expects the Bank to approve at least 50 billion pounds ($78 billion) of quantitative easing by August at the latest.

"The crisis in the euro area poses a number of very obvious downside risks to the British economy," he said. "Meanwhile U.K. growth looks set to remain below trend, at best, in any case over the next year."