Bank of England keeps QE at £375 billion and base rate at 0.50%

The Bank of England’s Monetary Policy Committee (MPC) has kept the QE programme at £375 billion and base rate at 0.50 per cent

Last month the MPC voted for an additional stimulus of £50 billion, taking the total of quantitative easing (QE) up to £375 billion.

Last month the MPC voted 7-2 to increase the asset purchase programme and had further discussions on lowering base rate from its record low of 0.5 per cent. However, whilst keeping this as a long-term option, the bank minutes from the last meeting reveal that this will not happen in the near term.

The MPC members have decided to wait and assess how these extra asset purchases impact on the economy and this will take until November.

However, since the last meeting there has been further damaging economic news released. GDP in the second quarter, based on a first estimate that includes only the output side of the economy, fell by 0.7 per cent.

Yesterday saw disastrous figures out from the manufacturing sector that saw activity in the sector fall to a 38-month low.

The Bank of England will also want to judge the impact that its newly unveiled Funding for Lending scheme will have on the economy. This is designed to help stimulate the property market by offering cheaper borrowing rates to banks and other financial institutions as long as they pass the borrowing under the new scheme on to individuals and businesses. The scheme was launched yesterday.

Howard Archer, Chief UK & European Economist at IHS Global Insight said: "The MPC were always likely to sit tight at their August meeting given that they had only sanctioned a further £50 billion of Quantitative Easing in July.

"We now believe that a further £50 billion dosage of QE is highly likely which would take the stock up to £425 billion, but at this stage we believe that the MPC will wait until the current extension runs out in November before acting, especially as the Funding for Lending Scheme will hopefully increasingly take effect.

"We certainly would not rule out a future trimming of interest rates from 0.50% to 0.25%, but we believe it is more likely that they will stay at 0.50% through until at least late-2014," added Mr Archer.

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