British interest rate stuck at record low 0.5%
2011-06-09 18:12:26
The Bank of England maintained its key lending rate at a record low 0.50 percent on Thursday, opting against a hike as Britain's economic recovery buckles under the strains of weak growth and soaring inflation.
The announcement came shortly before the European Central Bank voted to leave its key lending rate at 1.25 percent although ECB head Jean-Claude Trichet is widely expected to signal a near-term hike for the eurozone later Thursday.
Trichet is hoping that further rate tightening will help curb high inflation across the eurozone. Food and energy prices are soaring in Britain but the Bank of England is holding back from hiking its rates due to weak domestic growth.
On Thursday, the Bank of England also opted against changing its stimulus programme, known as quantitative easing (QE), under which it has injected 200 billion pounds (225 billion euros, US$328 billion) into the economy.
The BoE's monetary policy decisions were in line with market expectations. Minutes from its two-day meeting will be published on June 22 and will include explanations of the vote results.
Citi economist Michael Saunders said he expected the BoE to begin raising its key rate in the second half of the year amid "rising pay deals, elevated inflation expectations ... plus reduced downside worries over economic growth."
The central bank slashed interest rates to 0.50 percent more than two years ago, in March 2009, when it also launched the radical QE programme to help drag Britain out of deep recession.
Britain exited a record-length recession in late 2009 but the recovery has faltered amid deep cuts to state spending and tax hikes.
The economy expanded 0.5 percent in the first three months of 2011 but this only made up for a contraction of 0.5 percent in the final quarter of 2010, when the economy was hit hard by severe winter weather.
The International Monetary Fund on Monday backed the government's policy of cutting public spending to slash a massive deficit, despite domestic calls for the pace of cuts to be slowed because the economic recovery has faltered.
Leader of the world's Anglicans, Archbishop of Canterbury Rowan Williams, launched a rare attack on Britain's coalition government Thursday for introducing radical reforms "for which no one voted".
In the most outspoken political intervention by a Church of England figure for two decades, Williams wrote in the New Statesman magazine that lack of consultation over health and education cuts had caused "anxiety and anger".
Prime Minister David Cameron's Conservative-Liberal Democrat coalition was elected in May 2010 and immediately introduced tough austerity measures.
Amid the deep cuts, the BoE's chief economist recently warned that Britain's economy faced a "bleak time" over the next two years. Spencer Dale also admitted that he could not be sure about how soon interest rates would rise or by how much.
Britain's annual inflation rate soared to 4.5 percent in April, hitting a two-and-a-half-year high and stoking the prospect of an interest rate hike some time soon. The BoE's target inflation rate is just 2.0 percent.