Bank of England holds interest rates at record low

The Bank of England paused for breath today a month after its shock decision to pump an extra £50bn (€57bn) into the recession-hit UK economy.

The Monetary Policy Committee (MPC) held interest rates at their 0.5% record low and gave no further boost to its £175bn (€199.6bn) quantitative easing programme.

The decision comes amid encouraging economic signs, such as recovering manufacturing output and stock markets reaching their highest level in a year.

Bank governor Mervyn King stunned markets last month after it emerged he called for even more help for the UK economy, although his proposal for an extra £75bn (€85.55bn) in fiscal stimulus was outvoted by the committee.

The latest decision comes amid criticism of the MPC’s reluctance to take early action to ward off recession by former rate-setter David Blanchflower.

He called the governor “old iron fist” and attacked a passive MPC’s focus on inflation targets while the economy spluttered to a halt.

The committee took drastic measures only following the financial crisis - although this month there were no surprises as the MPC waits for the effect of its massive stimulus to be felt.

A raft of recent encouraging indicators for the UK economy are likely to have dampened the committee’s appetite for further measures.

This week economic forecasters at a respected think-thank hailed the first quarterly growth since May last year, while good news on the jobs market and consumer confidence added to the cheer.

Stock markets are also on the rise, with the FTSE 100 Index closing above the psychologically important 5,000 level for the first time in almost a year yesterday.

The housing market has continued to improve, leading to hopes of a sustained recovery.

The Halifax said today that prices rose for the second month in a row in August, while the annual rate at which prices are declining eased to 10.1%, the lowest figure since July 2008.

The MPC has been keen to stress that the effects of QE will take time to filter through, fuelling a wait-and-see approach on monetary policy.

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