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Bank of England holds rate under new head Carney

Quantitative easing to remain at £375 billion

Gulf News

London: The Bank of England on Thursday held its main interest rate steady and froze its stimulus amount at the first meeting headed by new governor, Canadian Mark Carney, and hinted that it would not lift record-low borrowing costs in the short term.

“The BoE’s Monetary Policy Committee (MPC) today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent,” the bank said in a statement.

The British central bank added that its bond-buying stimulus policy, known as quantitative easing (QE), would remain at £75 billion ($572 billion, €440 billion).

The decisions were widely expected after this week’s stream of upbeat data that dispelled pressure to raise the BoE’s stimulus, which is aimed at boosting lending and bolstering economic growth.

But in a warning over the outlook, the BoE added: “In the committee’s view, the implied rise in the expected future path of bank rate was not warranted by the recent developments in the domestic economy.”

In reaction, sterling sank against the dollar as markets took the comments as an indication that the BoE would sit tight over rates, with Britain’s economic recovery still fragile.

“If today’s meeting is anything to go by, the BoE rate decisions are about to get a lot more interesting,” said analyst Craig Erlam at traders Alpari.

“In the statement, the BoE (also) floated the possibility of using forward guidance at the next meeting in August, and out of nowhere, Carney Carnage erupted in the markets,” he added.

Carney began his job at the British central bank on Monday, taking the reins from Mervyn King, and has since been greeted with news of impressive growth in Britain’s services, manufacturing and construction sectors.

“At its meeting today, the committee noted that the incoming data over the past couple of months had been broadly consistent with the central outlook for output growth and inflation,” the BoE said in Thursday’s statement.

Under previous chief Mervyn King, markets normally had to wait two weeks for any explanation of the reasons behind the decisions.

BoE is to publish full minutes from this week’s gathering on July 17.

On Thursday it said: “In the United Kingdom, there have been further signs that a recovery is in train, although it remains weak by historical standards and a degree of slack is expected to persist for some time.”

Official data last week however showed that Britain’s economy expanded by 0.3 per cent in the first quarter of 2013, and had never experienced a double-dip recession as previously thought.

Nevertheless, the Office for National Statistics also said that the recession following the 2008 global financial crisis was far worse than previously thought.

The bank’s main task is to keep annual consumer price index (CPI) inflation close to a government-set target of 2.0 per cent, some way below the current rate.

“Twelve-month CPI inflation rose to 2.7 per cent in May and is set to rise further in the near term,” the BoE said on Thursday.

“Further out, inflation should fall back towards the 2.0-per cent target as external price pressures fade and a revival in productivity growth curbs domestic cost pressures,” it added in the statement.

Across in Frankfurt on Thursday, the European Central Bank also held Eurozone interest rates at a record-low 0.50 per cent, amid stubborn market concerns over the plight of debt-plagued Portugal.