No change on interest rates despite UK growth worries

Julian Knight
Thursday 06 September 2012 21:16
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The Bank of England interest rate was left on hold at 0.5 per cent yesterday, despite more dire predictions for UK economic growth.

It suggests the Bank's Monetary Policy Committee is waiting to see how its latest quantitative easing programme, announced in July and barely halfway to its £50bn target, will boost economic activity.

"The economy is still finding life very difficult, and further, stimulative action remains highly likely in the fourth quarter," Howard Archer, at IHS Global Insight said.

As if policymakers needed any further reminding of the dire state of UK plc, the Organisation for Economic Co-operation and Development said the British economy would shrink by 0.7 per cent in 2012. In May, the same body said it would actually grow by 0.5 per cent.

Elsewhere, the European Central Bank chose to ape the Bank of England's wait and see approach by leaving its key interest rate on hold at 0.75 per cent. But apart from that the ECB was all action, with its president Mario Draghi unveiling his bond-buying scheme meant to support the finances of the eurozone's most debt-ridden governments, particularly Spain and Italy.

Unlimited resources will be put into the scheme which will see short-term bonds bought by the ECB, but strict conditions applied to nations needing help.

Mr Draghi said this will provide a "fully effective backstop" for the eurozone. In response, markets across Europe rose, with Germany's Dax and France's benchmark CAC40 up about 3 per cent and London's FTSE 100 up DAX up 2.9 per cent to 7,167, the CAC 40 2.1 per cent higher at 5,777.

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