No change in monetary policy from the Bank of England

The Bank of England’s Monetary Policy Committee (MPC) has voted to keep base rate at 0.50 per cent for the 44th consecutive month and to keep its programme of quantitative easing at £375 billion.

The announcement was widely anticipated as the impact of the last dose of QE, £50 billion in July, has yet to work its way through the economy.

Most analysts expect to see some further action on QE later this year with the consensus that the bank will inject a further £50 billion into the economy in November, taking the asset purchase programme up to £425 billion.

However, last week the Deputy Governor of the Bank of England, Paul Tucker, said that QE may be "losing its bite."

Howard Archer, Chief UK Economist at IHS Global said: "No action from the Bank of England as expected, but the MPC are likely keeping the QE gunpowder dry for firing again in November.

"We believe the odds are still heavily slanted towards more Bank of England stimulus in November, most likely in the form of a further £50 billion of Quantitative Easing which would take the stock up to £425 billion."

The latest PMI surveys for the manufacturing, construction and services sector were mixed but overall show that underlying growth is still there but at a slower pace than in August.

Barry Naisbitt, Chief Economist at Santander UK, said: "The decision to hold rates and quantitative easing today came as no surprise to markets and commentators.  The latest indicators of economic activity show a mixed picture - stronger for the service sector than for manufacturing industry.  But despite the relative pick up in service sector activity in the past two months, the overall tone of activity indicators shows the pace of underlying economic activity is weak."

Although the MPC has discussed the possibility of trimming base rate from 0.50 per cent to 0.25 per cent, there is not widespread support for this.

Mr Archer said: "We remain doubtful that the Bank of England will trim interest rates from 0.50% to 0.25%. There is concern within the Bank of England that even lower interest rates would hit banks’ profit margins and constrain their ability to lend."

The minutes of this month’s meeting, published on October 17th will tell us more about how the decision was arrived at. The minutes from last month showed that there was widespread consensus that more QE is likely to be required but not yet.

An extract said: “Some members “felt that additional stimulus was more likely than not to be needed in due course.”

There was relief from some sections of the financial world who are concerned about the impact of QE on pensions.

Dr Ros Altmann, Director-General of Saga said: "I am very pleased the Bank has decided not to create any more new money. Quantitative Easing (QE) is a drastic policy experiment that may be valid for an economic emergency to avoid depression but we are clearly not in a depression.

"Indeed, we may be emerging from recession and, with inflation still above target, the Bank is right to hold off from any more measures. Especially since its past buying of gilts has had such damaging negative side effects on pensions and companies with pension deficits."

Free guide to inflation