Bank of England holds rates at 0.5%

The Monetary Policy Committee has copied the Fed's 'sitting on hands' strategy and voted for no change to the interest rate, shelving quantitative easing for another fortnight.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

Yesterday, the US Federal Reserve emerged from a two-day meeting to announce its strategy to kickstart the American economy. The consensus from its pointy heads? Do nothing at all. Today, the Bank of England has followed suit, keeping monetary policy unchanged in July. 

There is method behind the MPC's madness. The Bank of England has just unveiled its Funding for Lending scheme, and the Bank's doves deem it wise to see whether this has any effect before pulling other economic levers. However, with latest PMI surveys showing a significant slump in manufacturing activity, and the ONS noting a 0.7% drop in GDP in the second quarter, the UK doesn't have much time for 'wait and see' economics.

Next week, the Bank publishes its quarterly Inflation Report, which should give some indication if we're sailing into fair weather or foul. But, with no resolution in sight for the eurozone crisis, and business and consumer confidence at an all-time low, it seems inevitable that growth predictions will be revised down again. As the CBI's head of economic analysis Anna Leach points out, 'The outlook for the UK economy remains fragile, particularly in light of the disappointing official data for the first half of the year and the recent slowdown in global momentum.'

Unfortunately, it is Europe that holds the key to our economic future. It is our most important trading partner, and developments in the eurozone are likely to affect us far more significantly than a few tweaks of policy at home. The ECB's promise today to help ailing eurozone nations by boosting their bailout funds falls far short of a solution, however. So, come September, the MPC may be forced to abandon its 'do nothing' strategy and test out a few economy-prodding wheezes of its own.

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