No surprises as Bank holds rates at 0.5%

You'll never guess what the Bank of England has gone and done. That's right, absolutely nothing.

by
Last Updated: 31 Aug 2010

In news that will shock nobody, the Bank of England’s Monetary Policy Committee announced today that it’s keeping interest rates on hold at 0.5% for another month. Unfortunately, that’s not because it’s declaring an end to the recession: it’s just given up trying to use interest rates to combat it. Six cuts in as many months have failed to arrest our economic decline, forcing the Bank to turn to the radical measure of quantitative easing instead. So we imagine this month’s rates decision was a fairly speedy one…

Since last October, the MPC has slashed the base rate from a relatively exorbitant 5% to an all-time low of 0.5%. But although we may have more money in our pockets as a result, it’s failed to break the credit logjam – and with rates so close to zero, any further cuts are unlikely to make much difference. Hence why Mervyn King and co have launched into QE instead (sorry, but it’s way too long to keep writing out). Since this only kicked off last month, it’s too early to tell whether it's working – although initial signs have been relatively promising. According to today’s statement, the Bank has so far spent about a third of the planned £75bn, and reckons it will take another two months to deploy the rest.

Clearly the MPC is still grappling with a pretty gloomy economic situation. According to a Reuters survey yesterday, City economists are now expecting UK GDP to slump by 3.6% this year – worse than previously forecast, and potentially the weakest showing since the Second World War. But glass-half-full-types (like us) have been cheered by the appearance of one or two relatively positive signs. Consumer confidence has crept up for two months in a row; mortgage approvals are inching up (as are house prices, according to Nationwide); and the rate of decline in the manufacturing and services sectors has slowed markedly. Not exactly green shoots, but better than nothing.

One thing we may also hear from the Bank soon is some thoughts on whether Britain’s biggest banks should split their retail and investment banking arms, according to today’s Times. With the Tories also threatening to break up Britain’s nationalised banks (and act to prevent future behemoths), such whispers are likely to result in plenty of furrowed brows in City boardrooms as our chastened bankers prepare to flee for Easter...


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No surprises as Bank holds rates at 0.5%
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