Bank of England keeps base rate at 0.5% and QE at £275bln
Thursday, 12 January 2012 11:56
The Bank of England’s Monetary Policy Committee (MPC) has voted to maintain base rate at 0.5 per cent and retain the asset purchase programme of quantitative easing (QE) at £275 billion.
No new major policy initiatives were expected in January’s meeting of the MPC. The committee judged that it was still too early to judge the effectiveness of the £75 billion of QE that was introduced to the economy in October 2011.
However, most analysts believe that further asset purchases are likely, with next month that most experts judge that there will be more money pumped into the economy.
The consensus is that a further £50 billion of QE is also likely to be introduced in May or June. This would take the total of asset purchases up to £375 billion.
Howard Archer, Chief UK & European Economist at IHS Global said: "No surprise with no policy action from the Bank of England this month. But Bank of England action looks odds-on in February with another £50 billion of Quantitative Easing the most likely outcome.
"Delaying further policy action until February gives the committee time to hopefully see further retreats in inflation measures which would be helpful for Bank of England credibility in taking further stimulative action."
It seems highly likely that the Bank of England will not raise interest rates until at least the midway point of 2013. The UK economy is facing rising unemployment, inflation is still at nearly five per cent with wage settlements below half of that rate, consumer confidence is low and the threat of further damage to the economy from problems in the eurozone is still a serious threat.
However, although low interest rates are good for people with a mortgage, they reduce the income of savers who are struggling to make a return that beats inflation. The Save Our Savers pressure group said: "The economy is now so distorted by artificially low interest rates that investors in government bonds this week had to pay for the privilege of lending the government money. We have moved into the mad, topsy-turvy world of Alice in Wonderland."
Compare savings accounts
Follow Myfinances.co.uk on Twitter: @news_myfinances
Comments
Newsletter sign up