Bank of England leaves interest rate at 0.50%
2012-05-10 16:01:31
The Bank of England on Thursday said it had decided to keep its main lending rate at 0.50 percent and maintain the level of cash stimulus aimed at reinvigorating Britain's recession-hit economy.
"The Bank of England's Monetary Policy Committee today voted to maintain the official bank rate paid on commercial bank reserves at 0.50 percent," the BoE said in a short statement following its regular two-day monthly meeting.
"The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at 325 billion pounds ($525 billion, 406 billion euros)."
While the market had expected the central bank to leave the interest rate at an all-time low, the decision not to increase the amount of stimulus had been more open for analysts because since the BoE's last meeting in April, the economy has slumped back into recession even as inflation has picked up.
Britain clawed its way out of a record-length recession in the third quarter of 2009 but first quarter data showed it back in the doldrums, hit by tough government austerity measures and debt strains in the neighbouring eurozone.
To help Britain exit its last recession, caused by the global financial crisis, the Bank of England decided in March 2009 to slash its main interest rate to 0.50 percent - a level that has stood ever since.
At the same time, it launched an extraordinary stimulus programme known as Quantitative Easing that has seen it pump out cash totalling 325 billion pounds.
Under QE, the central bank creates new cash to purchase assets such as government and corporate bonds with the aim of giving a boost to lending and economic activity but the risk of QE is higher inflation, according to experts.
The economy shrank 0.2 percent in the first quarter of this year after a 0.3-percent drop in the fourth quarter of 2011. Recession is defined as two successive quarters of contraction.
With Britain's 12-month inflation rate rising unexpectedly in March, the BoE finds itself in a tricky position over whether to increase the amount of cash stimulus.
The Consumer Price Index showed a gain of 3.5 percent in March, up from 3.4 percent in February, according the most recent data.
That marked the first increase since September 2011 and contrasted with market expectations for no change.
The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set target of 2.0 percent.