No change from Bank of England on rates

Thursday 05 September 2013 15.43
No changes in QE or rates from Bank of England today
No changes in QE or rates from Bank of England today

The Bank of England announced no changes to interest rates or its bond-buying programme and made no further statement on its policy today.

The bank had been expected to take a breather following a hectic couple of months under new governor Mark Carney which has seen the economy show fresh signs of life.

Bank of England said its Monetary Policy Committee kept interest rates at a record low of 0.5%.

It also made no change to its asset purchase programme under which it has spent £375 billion sterling on British government bonds.

The bank's September policy meeting - which unusually took place on Tuesday and Wednesday to allow Carney to attend the Group of 20 summit in Russia which started today - followed two landmark MPC gatherings.

In July, it took the unexpected step of warning financial markets against making premature bets on an interest rate hike. And in August it agreed its new forward guidance plan to keep rates on hold until Britain's unemployment rate falls to 7%, something the bank expects only in late 2016.

Signs of a surprisingly strong recovery in the economy, while a welcome change for policymakers, has added to scepticism in financial markets about the BoE's ability to keep rates at a record low of 0.5% for so long.

Strong manufacturing and services surveys this week prompted some economists to predict that growth in the third quarter could speed up to more than 1%, much stronger than the bank's forecast of about 0.6%.

Rising market interest rates has raised the prospect of higher borrowing costs for consumers and companies that could hamper the still incipient recovery.

The recent run of stronger economic data from Britain and in its European export markets may have added to disagreements among Bank of England policymakers.

In August, one member of the Monetary Policy Committee (MPC) voted against the forward guidance plan out of concern it would undermine the bank's inflation-fighting credibility. Others said there was probably a case for buying more government bonds in the future to give the recovery an extra boost.

A couple of MPC members might now have voted to pump more money into the economy, economists said, speaking before today's MPC announcement.

Governor Carney last week said the BoE might give more help to the economy if the recent rise in market interest rates added to risks for the recovery. But the recent signs of stronger growth have probably reinforced the opposition of the majority to more bond-buying.

Minutes of September's meeting are due to be published on September 18, with the usual lag of nearly two weeks.

The Bank of England has tended to make statements only when it made big changes to policy but July's warning on rates prompted some speculation that, under Carney, statements might be more regular.

Meanwhile, the ECB also kept euro zone interest rates steady at 0.5% in Frankfurt today and said rates would remain low until the euro zone recovery gathers steam.