Bank holds base rate for third anniversary

The Bank of England maintained its monetary policy stance at this week’s meeting, after expanding its quantitative easing (QE) programme by £50 billion last month.

This morning the Monetary Policy Committee (MPC) voted to keep its asset purchase facility at its current £325 billion and hold the base interest rate at 0.5% for its 36th month running.

This was widely expected by the market as the £50 billion added to QE in February will take three months to enact. The Bank has also shown reluctance to take the base rate below its present historic low.

Howard Archer, chief UK and European economist at IHS Global Insight, says: “We believe that the Bank of England is now firmly in ’wait and see’ mode.

“Indeed, Sir Mervyn King’s testimony to parliament’s Treasury Select Committee at the end of February strongly indicates that this is the case and that the Bank of England’s future policy actions will be guided by the evidence on the economy before the MPC at the time.” (article continues below)

The MPC is likely to add to QE in May, commentators suggest. The minutes of the committee’s February meeting show all nine members were in favour of boosting the programme with two -Adam Posen and David Miles – arguing for a £75 billion increase.

However, David Kern, chief economist at the British Chambers of Commerce, remains concerned that QE has had a “limited” effect on the real economy and says the programme should be amended to support business lending.

“The MPC … should consider including assets other than gilts, such as securitised [small and medium-sized enterprise] loans and mortgages, in the QE programme,” Kern says.

“There are also lessons to be learned from the European Central Bank’s recent success in providing large amounts of longer-term cheap money to banks. Similar measures in the UK could make banks less risk averse and may help to stimulate the flow of lending to viable businesses.”