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Business News

Bank of England holds interest rates at 0.5%


The Bank of England resisted unveiling more emergency measures to support the UK recovery today.

The Bank's Monetary Policy Committee (MPC) maintained interest rates at a record low of 0.5% and held its quantitative easing (QE) stock at £375 billion.

The no-change decision comes after official figures revealed the economy grew at a bigger-than-expected 1% between July and September, ending the double-dip recession.

The move is likely to fuel expectations that the Bank will no longer resort to QE as a policy tool following hints from both its governor and deputy governor, Sir Mervyn King and Paul Tucker, that its impact is reaching its limit.

And minutes from the October meeting of the Bank's Monetary Policy Committee (MPC) suggested members were divided over the benefits of pumping more emergency cash into the economy.

The documents also said some members had questioned the impact that further QE, also known as money printing, would have on the broader economy.

The decision is likely to have been a close call for the nine-strong panel after a recent run of weak purchasing managers surveys for the services, manufacturing and construction sectors in October.

The surveys gave credence to expert warnings that the underlying health of the economy is much bleaker than the 1% growth in the third quarter suggests.

An encouraging start to the Bank's Funding for Lending scheme may have also tipped the balance away from further asset purchases this month with 30 groups, including the five largest banks in the UK, signing up to the £80 billion initiative.

Funding costs have dropped one percentage point, the Bank said, while the number of loans approved for house purchase rose by 2,103 to 50,024 in September.

Consumer prices index inflation has also eased back significantly and, at 2.2% in September, is close to the Government's 2% target.

Vicky Redwood, chief UK economist at Capital Economics, said: "The MPC's decision to leave policy on hold today would not have been an easy one and the vote could have been quite close.

"We think that more policy stimulus will be required in the coming months - the question is whether the Committee feels it has the tools to deliver it."