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BoE holds fire on quantitative easing


March benchmark interest rate maintained at 0.5% as expected

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The Bank of England's (BoE) Monetary Policy Committee has said it would maintain the stock of asset purchases financed by the issuance of central bank reserves, known as quantitative easing (QE), at £375 billion.

In its decision announced on Thursday, the Committee also voted to maintain the UK’s benchmark interest rate at 0.5 percent, a level it has been at since March 2009. City economists' response to the decision suggested that further QE action is all but imminent.

James Knightley, economist at ING, said, "We were in the camp expecting an extra £25 billion of QE on the basis that since three members, including Governor Mervyn King, voted for an extra £25 billion of QE in February, there wasn't a particularly high hurdle for more action."

"We think the BoE took the view that they didn't need to add to pound sterling's woes by printing more money this month. In any case, UK bond yields have fallen back despite the ratings downgrade while equity markets remain buoyant. We still look for more stimulus given the weak demand story in the UK, but it is more likely to come in May when the BoE release new forecasts," he added.

Howard Archer, chief UK economist at IHS Global Insight, said, "BoE's decision to hold off from stimulus action was the likely the result of a tightly split vote and we strongly suspect that the MPC will act in the second quarter and very possibly as soon as April."

Archer said improved February surveys for the dominant services sector and retail sales may have done just enough to have stopped the BoE from acting in March, particularly as support for the economy is coming from sterling’s marked decline.  

"However, we suspect that it is more a question of what further action will the BoE take to try and help the economy, rather than will they act," told CFO World.

In a statement, Stephen Gifford, the director of economics at the CBI, said, "A combination of mixed economic data and the BoE's recent tilt in a more dovish direction is likely to have made this decision a close call. With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue."

The minutes of Thursday's meeting will be published on 20 March.

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BoE holds fire on quantitative easing
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