Bank of England holds interest rates at record low

 

The Bank of England resisted injecting further emergency medicine into the UK economy today as optimism over finding a solution to the eurozone debt crisis grew.

Bank governor Sir Mervyn King and his colleagues on the Monetary Policy Committee (MPC) held the quantitative easing (QE) stock at £325 billion and maintained interest rates at record lows of 0.5%.

While the decision echoed that of the European Central Bank yesterday, China's central bank moved to shore up its powerhouse economy by slashing its benchmark interest rate for the first time since 2008, dropping the one-year deposit rate to 3.25% from 3.5%.

World markets were boosted by the move, as well as improved sentiment on the continent where political leaders were holding talks over the future of the single currency, including tackling the banking crisis in Spain.

Chancellor George Osborne has said he is "optimistic" a solution will be found to the Spanish banking crisis, while Prime Minister David Cameron pushed his eurozone counterparts to act quickly.

Sir Mervyn has frequently cited the eurozone's woes as the biggest threat to the UK economic recovery and has urged political leaders to form an urgent response.

Pressure on the Bank to implement more stimulus measures has been mounting in recent weeks after official figures showed the UK's double-dip recession was deeper than previously thought, with a 0.3% fall in the first quarter of 2012.

And last week, a purchasing managers survey revealed a sharp and sudden contraction in the manufacturing sector, prompting fears of a prolonged recession.

But hopes for the UK recovery were boosted earlier today when a closely-watched survey of the powerhouse services sector in May revealed robust growth, allaying some concerns over a worse-than-expected report on the smaller manufacturing sector last Friday.

Anna Leach, the CBI's head of economic analysis, said the MPC's decision would have been a "tricky one".

She said: "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.

"But we still expect the UK economy to improve modestly later in the year, with further falls in inflation providing some support to family incomes."

IMF boss Christine Lagarde also called on the Bank to lower interest rates further to help the UK weather the eurozone debt crisis.

And inflation continued to fall in April, providing more leeway for a fresh money injection.

Philip Shaw, chief economist at Investec, said he still expects an additional £50 billion QE boost in August - but action could be taken as soon as next month.

He said: "We consider that it would be wrong to rule out more QE. The crisis in the euro area poses a number of very obvious downside risks to the British economy.

"Meanwhile UK growth looks set to remain below trend, at best, in any case over the next year."

PA

Start your day with The Independent, sign up for daily news emails
Voices
voices
News
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
News
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
news
ebooks
ebooksA celebration of British elections
  • 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: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before