Bank of England holds interest rates and quantitative easing

May 10, 2012

High inflation deters Bank from printing more money as rates are kept at 0.5%

THE BANK of England has voted against pumping emergency cash into the economy today despite Britain's return to recession.

Members of the Bank's Monetary Policy Committee (MPC) decided to keep interest rates at their record 0.5 per cent low for a 38th month and maintain quantitative easing at £325bn.

QE was last increased by £50bn in February but the committee chose to keep the printing presses quiet this month against the backdrop of high inflation.

Pressure for more measures to stimulate the economy has increased since the UK returned to recession in the first quarter and the eurozone crisis intensified. Inflation has remained stubbornly high at 3.5 per cent in March, raising fears that it will not drop down to the government's two per cent target by the end of the year as previously hoped.

Economists believe this high inflation would have influenced the MPC's decision. Ian McCafferty, the CBI's chief economic adviser, told The Independent that the "combination of sluggish activity and sticky inflation" put the committee in a difficult position and the decision would likely have been a "close call".

However, several economists believe the Bank might pump more cash into the economy over the next few months. Vicky Redwood, chief UK economist for Capital Economics, told This is Money that another £50bn of quantitative easing looks likely for August when the Bank's inflation report is published.

But she added: "The MPC is not bound to Inflation Report months and if the activity data continue to deteriorate at a rapid rate, we could easily see the committee moving in June or July instead."

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