Bank holds fire on stimulus at King’s last meeting

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The Bank of England has held off on announcing any further stimulus for the UK economy at the final meeting of Mervyn King as governor.

At today’s Monetary Policy Committee meeting, Bank officials voted to hold the base interest rate at its historic low of 0.5 per cent and maintained the size of its quantitative easing programme at £375bn.

The UK economy has benefitted from an improvement in economic data in recent weeks, with figures from the Office for National Statistics showing GDP as expanding by 0.3 per cent in the opening three months of the year.

Meanwhile, Markit’s purchasing managers’ indices have shown strengthening in the country’s key sectors. Manufacturing, construction and services PMIs out this all showed expansion and led to hope that the economy could see growth accelerate to 0.5 per cent in the second quarter.

IHS Global Insight chief UK and European economist Howard Archer says: “A recent stream of improved data and surveys have suggested that the UK economy may finally be gaining a firmer footing and could even expand at a faster rate in the second quarter than the 0.3 per cent quarter-on-quarter GDP growth achieved in the first quarter.

“This has alleviated the need for any further stimulus from the Bank of England in the near term at least.”

Current BoE governor King is set to step down from his position at the end of the month, to be replaced by Bank of Canada governor Mark Carney. Commentators expect Carney to make changes to the UK’s monetary policy once he takes charge.

Capital Economics chief UK economist Vicky Redwood says: “Mervyn King left his last Monetary Policy Committee meeting with his wish to restart the quantitative easing programme unfulfilled and the committee still seemingly stuck in a state of limbo ahead of Mark Carney’s arrival.

“Despite the recent signs of economic recovery, we expect Mr Carney to usher in a new wave of monetary stimulus. That said, the fact that he will be battling against a relatively hawkish contingent on the committee might limit how radical he can be.”