Bank of England in agreement over maintaining rates, stimulus
AFPLONDON--Bank of England policymakers voted unanimously to maintain record-low interest rates and the amount of quantitative easing cash stimulus earlier this month, minutes showed on Wednesday.
September 19, 2013, 12:25 am TWN
The central bank's Monetary Policy Committee voted 9-0 to keep its key lending rate at 0.50 percent and maintain its bond-buying QE scheme at 375 billion pounds (US$570 billion, 446 billion euros), according to minutes from the meeting that was held at the start of September.
The committee noted that economic growth was improving and had strengthened since August but cautioned about becoming too complacent over Britain's recovery prospects.
“Domestically, there were increased signs that the recovery was taking hold,” the minutes read. “The GDP data for the second quarter had been revised up, and survey indicators of activity had been upbeat.”
But the minutes added: “Against the backdrop of indicators of stronger near-term growth than seemed likely a month earlier, there were tentative signs that the degree of spare capacity within firms might be beginning to diminish.”
Recent upwardly revised data showed that British gross domestic product (GDP) grew by 0.7 percent in the second quarter.
That was more than double the 0.3-percent expansion that was witnessed in the first three months of 2013 — and sparked talk that the Bank of England may raise rates sooner than anticipated.
September's MPC gathering was meanwhile the first session since announcing its “forward guidance” strategy under its new governor, Canadian national Mark Carney.
Under the new policy, any rise in record-low interest rates would be tied to a drop in British unemployment.
The key interest rate will now remain at the current level of 0.50 percent until Britain's unemployment rate falls to at least 7.0 percent, the central bank has said.
The Bank of England's own projections indicate that such a drop from Britain's current unemployment rate of 7.8 percent would not occur for three years, but markets are betting on this happening sooner.
Indeed, interest rates could in any case rise earlier should British annual inflation remain high above its target rate of 2.0 percent, the Bank of England has itself warned.
The Bank of England's main task is to use monetary policy as a tool to keep annual inflation close to a government-set level of 2.0 percent, in order to preserve the value of money.
British annual inflation fell to 2.7 percent in August from 2.8 percent in July, official data showed on Tuesday.