Bank keeps interest rates on hold

 

The Bank of England refrained from unleashing further emergency support for the economy today, despite receiving a jolt over the health of the UK's recovery.

The Bank's Monetary Policy Committee maintained interest rates at record lows of 0.5% and held its quantitative easing (QE) programme at £375 billion as it continues to work through £50 billion of asset purchases announced in July.

The move comes after positive manufacturing and services surveys revealed tentative signs of a recovery - but this optimism was dampened after the Organisation for Economic Co-operation and Development slashed its growth forecast for 2012.

The think-tank expects the UK will fail to pull out of its double-dip recession in the current quarter, which will see a 0.7% decline on an annualised rate, compared to previous expectations of a 0.5% decline.

Most economists have predicted a further QE boost in November, after the current run of asset purchases is completed, while some believe a rate cut is on the cards.

Anna Leach, CBI head of economic analysis, said: "We would need only a relatively small deterioration in economic conditions to prompt a further extension of the asset purchase programme later this year."

The Bank also recently admitted that QE has increased the fortunes of the wealthiest 5% of Britons while eroding the value of many pension funds.

Ros Altmann, director-general of Saga, said the Bank was wrong to suggest that pensioners have not lost out and said QE was causing "significant economic damage".

Aside from recent surveys, there has been little change in the economic outlook since the MPC's last meeting, although SSE's 9% hike in energy bills from next month and the impact of US drought on food prices have threatened the inflation outlook.

The Bank currently expects the rate of inflation - which increased to 2.6% in July - to fall to the Government's 2% target by the end of this year.

Governor Sir Mervyn King and his colleagues will also want more time to assess the impact of the UK's £80 billion "funding for lending" scheme, which was launched in the summer with the aim of unclogging the flow of credit.

The committee has also considered cutting rates below the current level of 0.5% - a move that once seemed improbable - although the Bank continues to favour QE as its economic weapon of choice.

Today's meeting was the first for former CBI chief economic adviser Ian McCafferty, who has replaced Adam Posen.

In a report released last month, the Bank said its QE programme has increased total household wealth by 16%, or £600 billion, after increasing the value of assets.

But it is the richest households - holding around 40% of these assets - that have benefited the most, according to the Bank.

The report also found that pension funds with hefty shortfalls will have seen their deficits increased further, but the Bank rejected fears that QE has hurt pensioners.

Nida Ali, economic adviser to the Ernst & Young ITEM Club, said: "The Bank has given no indication of any intention to loosen policy further in the coming months, but the downside risks, particularly from the Eurozone crisis, remain significant.

"Were the crisis to worsen, the Bank would be forced to provide far greater monetary support, both in the form of more QE as well as other 'unconventional' measures."

Victoria Clarke, economist at broker Investec, said the minutes of the September meeting will be read carefully for hints of fears over rising inflation.

She said: "With CPI inflation having crept back up again in July, rising from 2.4% to 2.6%, we will be watching out for hints of the committee looking a touch more nervous about the prospect of inflation retreating to or even below the 2% mark over the next couple of years.

"Indeed, our own forecast now no longer sees a decline in CPI inflation to the 2% mark over the next two years."

PA

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Masterchef cooks Tony Rodd (left), Emma Spitzer (second left) and
Simon Wood (right) posing with judges Gregg Wallace (centre) and John Torode (second right), as the three will be seen cooking their hearts out in the hopes of winning the show.
TVReview: Tired Geography teacher John Torode and shaved Scotch egg Gregg Wallace crown the champion
Voices
Ukip leader Nigel Farage in Tiny Tim’s tea shop while canvassing in Rochester this week
voices
Life and Style
life
News
The Grand Palais in Paris will be transformed into a 4,000-seat cinema, with 44 double beds at the front
news
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Business Analyst - Financial Services - City, London

£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

Recruitment Genius: Administrator - IFA Based

£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...

Day In a Page

Major medical journal Lancet under attack for 'extremist hate propaganda' over its coverage of the Israeli-Palestinian conflict

Lancet accused of 'anti-Israel hate propaganda' over coverage of Gaza conflict

Threat to free speech as publishers of renowned medical journal are accused of inciting hatred and violence
General Election 2015: Tories and Lib Dems throw their star names west to grab votes

All noisy on the Lib Dems' western front

The party has deployed its big guns in Cornwall to save its seats there. Simon Usborne heads to the heart of the battle
How Etsy became a crafty little earner: The online market has been floated for £1.2bn, but can craft and capitalism coexist?

How Etsy became a crafty little earner

The online market has been floated for £1.2bn, but can craft and capitalism coexist?
Guy Ritchie is the latest filmmaker to tackle King Arthur - one of our most versatile heroes

King Arthur is inspiring Guy Ritchie

Raluca Radulescu explains why his many permutations - from folk hero to chick-lit hunk - never cease to fascinate
Apple Watch: Will it live up to expectations for the man or woman on the street?

Apple Watch: Will it live up to expectations?

The Apple Watch has apparently sold millions even before its launch tomorrow
Don't fear the artichoke: it's a good cook's staple, with more choice than you'd think

Don't fear the artichoke

Artichokes are scary - they've got spikes and hairy bits, and British cooks tend to give them a wide berth. But they're an essential and delicious part of Italian cuisine
11 best men's socks

11 best men's socks

Make a statement with your accessories, starting from the bottom up
Paul Scholes column: Eden Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo

Paul Scholes column

Hazard would be my Player of the Year – but I wonder if he has that appetite for goals of Messi or Ronaldo
Frank Warren: Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal

Frank Warren's Ringside

Tyson Fury will be closely watching Wladimir Klitschko... when he wins it'll be time to do a deal
London Marathon 2015: Kenya's brothers in arms Wilson Kipsang and Dennis Kimetto ready to take on world

Kenya's brothers in arms take on world

Last year Wilson Kipsang had his marathon record taken off him by training partner and friend Dennis Kimetto. They talk about facing off in the London Marathon
Natalie Bennett interview: I've lost track of the last time I saw my Dad but it's not because I refuse to fly

Natalie Bennett interview: I've lost track of the last time I saw my Dad

Green leader prefers to stay clear of her 'painful' family memories but is more open about 'utterly unreasonable' personal attacks
Syria conflict: Khorasan return with a fresh influx of fighters awaiting the order to start 'shooting the birds'

Khorasan is back in Syria

America said these al-Qaeda militants were bombed out of the country last year - but Kim Sengupta hears a different story
General Election 2015: Is William Cash the man to woo Warwickshire North for Ukip?

On the campaign trail with Ukip

Is William Cash the man to woo Warwickshire North?
Four rival Robin Hood movies get Hollywood go-head - and Friar Tuck will become a superhero

Expect a rush on men's tights

Studios line up four Robin Hoods productions
Peter Kay's Car Share: BBC show is the comedian's first TV sitcom in a decade

In the driving seat: Peter Kay

Car Share is the comedian's first TV sitcom in a decade. The programme's co-creator Paul Coleman reveals the challenges of getting the show on the road