Bank of England keeps status quo despite worsening recession
2012-08-02 17:39:46
The Bank of England on Thursday voted to keep record-low interest rates and maintain its Quantitative Easing (QE) stimulus, despite an increasingly bleak economic outlook in recession-blighted Britain.
"The Bank of England's Monetary Policy Committee (MPC) today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.50 percent," it said, adding QE funds would remain at 375 billion pounds (US$584 billion, 476 billion euros).
The central bank had been widely expected to keep its policy unchanged as it monitors the impact of last month's decision to ramp up QE funds by an extra 50 billion pounds by November.
Economists must wait until August 15 for the publication of minutes from the August gathering, for an insight into the committee's reasoning.
Data published last week showed British Gross Domestic Product (GDP) dived 0.7 percent in the second quarter from the previous three months, due to steep output falls in construction and manufacturing sectors.
The slump was the biggest quarterly fall since the first quarter of 2009 and marked the third quarterly negative reading in a row. A recession is defined as two quarters running of contraction.
Economists added that the BoE also wanted to wait to see the impact of the government's 80-billion-pound 'Funding for Lending' scheme aimed at injecting growth into the Britain's economy by boosting lending by banks.
"Despite the continuing run of soft data, we now judge the MPC to be in 'wait and see' mode, as it assesses the impact of the recent QE increase and the Funding for Lending scheme," said Victoria Clarke, an economist at Investec banking group.
In another heavy blow to the nation's hopes of recovery, a key survey on Wednesday showed that British manufacturing output shrank by the biggest amount in more than three years in July.
The purchasing managers' index (PMI) by Markit research group stood at 45.4 points last month -- the lowest level since May 2009 -- and down from 48.6 in June. A reading under 50 indicates contraction.