Rates kept on hold as pace of decline shows signs of slowing

Bank keeps interest rates at 0.5% and presses on with 'quantitative easing'

The Bank of England decided to keep interest rates on hold yesterday, against a background of hesitant signs that the pace of decline in the economy may be slowing.

The Bank confirmed that it will press on with its programme of "quantitative easing". At 0.5 per cent, the Bank rate stands at its lowest in the central bank's 315-year history. It stood at 5 per cent as recently as September.

The Office for National Statistics reported an improvement in the UK's balance of trade yesterday, with exports, especially outside the European Union, showing an especially healthy upward swing.

The trade deficit narrowed in the three months to February to £8.9bn, from a £9.3bn shortfall in the previous three months. During sterling's near-30 per cent depreciation in overseas value since 2007, there has been little visible benefit to British exports from the currency's weakness. But there may now be signs that it is at last feeding through to orders and output.

The export of goods rose by 2.5 per cent in February, while imports fell by 0.5 per cent. Exports to EU nations fell by 4.5 per cent, but to the rest of the world rose by 13 per cent, reflecting the exceptionally sharp downturn in major eurozone economies such as Germany. Overseas sales of food, drink, such as Scotch whisky, and tobacco were relatively strong.

With an overall "budget" of £150bn, £75bn of which is committed over the next few months, the Bank said yesterday that a total of just over £26bn of asset purchases had been made since the scheme was launched last month, and that it would take a further two months to complete the initial £75bn programme.

The vast majority of the funds – £25bn – have been spent on UK government securities, gilts, with maturities of between 5 and 25 years. Those and some more limited interventions in commercial paper (£1bn) and corporate bonds (£414m) have succeeded in pushing market rates well below the peaks seen at the height of the crisis, though they remain high by pre-credit crunch standards.

Surveys by the Bank, the CBI and the British Chambers of Commerce suggest a slight easing in the availability and cost of finance for business.

John Cridland, the CBI's deputy director general, said: "The first tentative signs of the impact on gilt yields, corporate spreads and commercial paper issue have been encouraging."

Most economists expect the Bank rate to remain low for some time, and await the publication of the MPC's minutes in about 10 days to shed more light on official thinking.

Charles Davis, an economist at the Centre for Economics and Business Research (CEBR), said: "With deflation still the major concern, we expect the Bank to hold rates throughout 2009 and midway into 2010. The next key debate will be whether the Bank extends asset purchases beyond the £150bn already authorised by HM Treasury; the MPC minutes will shed more light on this."

The Governor of the Bank of England, Mervyn King, told MPs recently he would expect to able to judge the effectiveness of the quantitative easing programme in about six months. The policy is aimed at directly boosting the amount of money in the economy, and with it spending, output and demand.

The ONS also released its latest numbers on factory gate inflation, which shows it again falling rapidly.

In the year to March, prices rose by 2 per cent, compared with 3 per cent for February. Input price inflation turned negative, at an annual rate of -0.4 per cent, compared with a positive annual rate of 24 per cent seen last autumn.

However, largely as a result of the slump in sterling, import prices are displaying some upward pressures, especially in food. Albeit only small, such embryonic indications of future inflationary pressures may eventually moderate the Bank's efforts to stimulate the economy.

The Bank may also be influenced by comments from European figures such as Christine Lagarde, the French finance minister, hinting that they disapprove of the "competitive devaluation" of sterling. The G20 communiqué stated: "We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries, and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system."

Given such powerful influences on British policymakers, a further heavy depreciation in sterling appears unlikely, unless markets begin to react to exceptionally disappointing news on the economy or on government borrowing. The Budget is due on 22 April.

PROMOTED VIDEO
Extras
indybest
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
Arts and Entertainment
tv
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
News
Ronahi Serhat, a PKK fighter, in the Qandil Mountains in Iraqi Kurdistan
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Poet’s corner: Philip Larkin at the venetian window of his home in 1958
booksOr caring, playful man who lived for others? A new book has the answer
Arts and Entertainment
Exhibition at the Centre Pompidou in Metz - 23 May 2012
art
News
Matthew McConaughey and his son Levi at the game between the Boston Red Sox and the Houston Astros at Fenway Park on August 17, 2014 in Boston, Massachusetts.
advertisingOscar-winner’s Lincoln deal is latest in a lucrative ad production line
Life and Style
Pick of the bunch: Sudi Pigott puts together roasted tomatoes with peppers, aubergines and Labneh cheese for a tomato-inspired vegetarian main dish
food + drink
Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
film
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

Junior Quant Analyst - C++, Boost, Data Mining

£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Service Desk Analyst- (Desktop Support, Help desk)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Junior Quant Analyst (Machine Learning, SQL, Brokerage)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

UNIX Application Support Analyst- Support, UNIX, London

£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape