The monetary policy committee (MPC) maintained the level of quantitative easing (QE) and kept base rates at their record low of 0.5% after its meeting on Thursday
The Bank of England’s interest rate setting committee has voted against increasing its £325bn programme of money creation, despite fears that Britain’s fragile economy faces a long recession.
The monetary policy committee (MPC) maintained the level of quantitative easing (QE) and kept base rates at their record low of 0.5% after its meeting on Thursday.
Pressure for further stimulus measures had intensified amid the recent deepening eurozone crisis and Britain’s slide back into recession, its first double-dip downturn since the 1970s.
The MPC injected £50bn into the stock of QE in January, but analysts said it is concerned that inflation has remained high, in part due to the knock-on effects of QE itself. In April, inflation unexpectedly rose from 3.4% to 3.5%.
Policymakers believe QE, which involves the bank of England buying government bonds from financial institutions, increases demand by cutting long term interest rates.
Ian McCafferty, chief economic adviser at the CBI, said the combination of sluggish activity and sticky inflation put the MPC in “a difficult position” and the decision was likely to have been a close call.
He added: “With economic conditions subdued, and signs of euro area tensions building again, another round of QE cannot be ruled out. But we expect the recovery to be on a firmer footing in the second half of the year, as inflation eases and the global economy strengthens.”
Howard Archer, chief economist at IHS Global Insight, said that if the MPC was split over the decision not to go for more QE this month, and if the economy shows further signs of faltering over the next few weeks, “then it is very possible that the Bank of England could turn to more QE as soon as June.”