Bank holds off on monetary policy changes

The Bank of England has held the base interest at its historic low of 0.5% for the 33rd month running.

At its meeting today, the Bank’s Monetary Policy Committee (MPC) also voted to keep the quantitative easing (QE) programme at £275 billion.

It was widely expected the MPC would avoid making any changes to monetary policy while a key European Union summit on resolving the debt crisis is held today and tomorrow.

The Bank added £75 billion to its QE programme in October. The additional purchases are scheduled to run until February, making any changes unlikely before then.

Howard Archer, the chief British and European economist at IHS Global Insight, predicts the Bank will expand QE further after the second bout concludes.

“Latest data and survey evidence are likely to have largely reinforced the MPC’s concerns over the economy and fuelled their belief that more QE will be required,” Archer says.

“Despite the very real and growing risk that the UK economy is headed back toward recession and could well contract in the fourth quarter, the Bank of England had clearly indicated that it considered it best to hold fire on more QE at this stage.”

Official figures published yesterday showed that the UK’s industrial production fell 0.7% month-on-month in October. Recent purchasing managers’ indices and surveys by the Confederation of British Industry also suggested continued weakness in the country’s manufacturing sector.

Furthermore, the British Retail Consortium said retail sales were very poor in November, adding to concerns on the UK’s recovery.

Earlier this week, the British Chambers of Commerce called on the Bank to increase its QE programme by a further £50 billion to £325 billion, arguing that this is needed to boost confidence and support growth.

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