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Bank of England holds fire on QE


Central bank also maintains interest rate at 0.5%

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The Bank of England maintained the benchmark UK interest rate at 0.5 percent on Thursday.

The decision meant that the central bank’s Monetary Policy Committee (MPC) has repeatedly voted to keep the interest rate unchanged at 0.50 percent since March 2009. Holding back on further quantitative easing (QE), the MPC also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.

Howard Archer, chief UK economist at IHS Global Insight, was doubtful if the decision marked the end of QE given that the economic recovery currently looked feeble and far from guaranteed.

“Indeed we expect another, and likely final, £50 billion of QE to be enacted in the early months of 2013. Furthermore, we would not rule out further QE as soon as December if data and surveys over the next few weeks increasingly point to renewed GDP contraction in the fourth quarter,” he told CFOWorld.

“We suspect that the Bank of England’s decision to hold off from further stimulus at the November MPC meeting may very well have followed a very close vote within the committee,” Archer added.

He remained firmly of the view that interest rates will not go below 0.50 percent but also did not expect any increase in interest rates for at least another two years.

Last week, think-tank National Institute of Economic and Social Research (NIESR) said the UK economy will remain in a period of near stagnancy and depression for two more years.

In an estimate, it said that UK GDP grew by 0.5 percent in the three months to October from a year earlier, but still well below the 2.8 percent noted at the start of 2008. It is already the country's most drawn out depression since the 1920s, beating the 1930s Great Depression.

NIESR forecasted growth of 1.1 percent next year and 1.7 percent in 2014. However, even once the economy has regained its potential level of output, NIESR opined that long-run growth rate will be only 2 percent per annum, lower than the long-run average of 2.5 percent.

With July’s £50 billion extension to QE now having been fully utilised, the Bank of England’s decision not to extend it further at the November MPC meeting has brought the programme to at least a temporary halt.

The minutes of the latest meeting would be published on 21 November. The MPC’s latest inflation and output projections will appear in the Inflation Report due to be published on 14 November.

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