BoE holds interest rates at 0.5%

The MPC has decided to leave the interest rate unchanged and hold off on any further quantitative easing.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Remember that scene in Alien when John Hurt had the squid monster on his face and any effort to remove it saw the tentacles tightening? It appears that the pointy heads over at the Monetary Policy Committee feel the same way about the UK economy.  ‘Don’t touch it! You might make it worse!’ they cry as outgoing Bank of England governor Mervyn King’s hand hovers over the big, red quantitative easing button.

Not even the economic meltdown in Spain can shake the MPC’s determination to do nothing. Interest rates have been at the record low of 0.5% for three years now. And it doesn’t look like there’s going to be any increase on the £325bn of quantitative easing already swishing around the UK economy.

Of course, it could be optimism behind this ‘sit and wait’ strategy. Today’s retail figures show a decent growth trajectory in sales for May, the Markit/CIPS purchasing managers' index came in at 53.3 in May, the same as in April, which means two consecutive months of growth (albeit muted).  And inflation is still slowly dropping, down to 3% in April, bringing us ever closer to the 2% target.

Could it be that all the economic lever-pulling last year has done the trick? That the recession will be a short-term blip as the last bout of quantitative easing and low interests rates continue to help the economy to grind slowly to life? Well, that’s what Spencer Dale, BoE chief economist reckons. So don’t expect much movement on the ‘no touching’ front from the MPC next month, either.

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