The Bank of England said today that its Monetary Policy Committee (MPC) has voted to maintain interest rates at 0.5% and also resisted calls to inject more money into the economy to help stimulate recovery.
Rates have now been held at their record low level for four years.
At the February meeting of the rate-setting committee, Bank of England governor Sir Mervyn King and two others voted to increase the quantitative easing (QE) programme by GBP25bn to GBP400bn but they were outvoted. Some economists were expecting the bank to expand QE at the MPC’s March meeting.
This morning’s announcement was supported by the British Chambers of Commerce (BCC), whose chief economist, David Kern, expressed disappointment that the pressure for further bond-buying is mounting. “We believe this would be misguided, as more QE would provide only marginal benefits for the real economy, while heightening risks of financial distortions, bubbles and higher inflation,” he added.
Business group the CBI agreed that the prospect of further QE remains. Its director of economics, Stephen Gifford, said that the decision this month is likely to have been a close call.
With the UK economy shrinking again in the final quarter of 2012, all eyes are on the economic data emerging in the first quarter for signs of growth or contraction.
A new survey released today by EEF, the manufacturers’ organisation, and business advisers BDO shows that conditions in the manufacturing industry remain around a three-year low but the outlook is brighter. There are signs that manufacturers could see conditions turn around in the second quarter, with output and order balances expected to recover back to levels seen in the early part of last year.
Also today the BCC published its latest forecast for the UK economy, downgrading its prediction for growth in 2013 to 0.6% from the earlier expectation of 1.0% growth. Similarly, the organisation now expects the economy to grow by 1.7% in 2014, a reduction from the earlier figure of 1.8%.
Commenting on its revised outlook, the BCC said that UK businesses are resilient and have the ambition needed to drive the national recovery forward, but reduced global growth prospects, particularly in the eurozone, together with the ongoing need to repair Britain’s public finances, mean that the pace of the UK recovery will be restricted over the next couple of years.