Bank of England holds course on interest rates

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The Bank of England held interest rates at 0.5 per cent yesterday and also ruled out another round of quantitative easing (QE) to provide a boost to the economy.

The decision to hold monetary policy steady came despite the three-way split within the Bank's rate-setting Monetary Policy Committee (MPC) over recent months.

One committee member Andrew Sentance has argued repeatedly for a rate rise to combat target-busting inflation, while his colleague Adam Posen is calling for an extra £50bn-worth of QE to counteract depressive economic forces, such as the Government spending cuts and the crisis in the eurozone.

The middle course preferred by Mervyn King, the Bank's Governor and chairman of the MPC, remained the majority view yesterday, although the voting split will not be revealed until the meeting minutes are published in two weeks' time.

Recent tentative positive economic data – particularly relating to recruitment and the manufacturing sector – is building a case against the need for another tranche of QE in the short term. And the majority of economists forecast interest rates to remain at current levels until at least the middle of 2011. But the inflation issue showed few signs of abating yesterday, with the trade balance figures for October showing both import and export prices rising by 1.7 per cent, compared with the previous month.

The Office of National Statistics (ONS) report also showed a £100m rise in the UK trade deficit in October. Within the total, trade in services showed a surplus of £4.6bn, while the trade in goods deficit rose to £8.5bn. Exports were up by £900m and imports by £1.1bn, month on month.

In a separate report, the ONS also said net investment abroad by UK companies fell by £78bn to just £21bn in 2009, the lowest level for 15 years. The sharpest fall was in investment into Europe.

Inward investment by foreign companies dropped by £3.2bn to £46bn, its lowest level in six years. France remained the largest investor, followed by the US. The sharpest fall in investment was from Asia.