BOE keeps rate low on inflation concerns
Source: Agencies |
May 11, 2012, Friday
|
Print Edition
Print Edition
THE Bank of England kept its base interest rate at the all-time low of 0.5 percent yesterday and did not approve any additional monetary stimulus, despite UK's fall back into recession, likely due to concerns over inflation.
With the UK economy officially in recession after two quarters of shrinking GDP, analysts had thought there was a chance the bank's Monetary Policy Committee may approve new stimulus this month. Most believed that worries about growth would be outweighed by concern over persistently above-target consumer price inflation, now at 3.5 percent.
"The MPC's inaction suggests that for now at least, the committee maintains the overall view that the economy is achieving underlying growth despite apparently being back in recession," said Howard Archer, European economist at IHS Global Insight.
"It also suggests that there is significant concern within the MPC that consumer price inflation will not fall back as far or as quickly as had previously been hoped," Archer said.
With yesterday's decision, the stimulus program - by which the central bank buys assets like government bonds from banks to create new money in the economy - remains at 325 billion pounds (US$524 billion).
The duration and depth of UK's recession and trends in inflation data will be key to the BOE's policy decisions in coming months.
With the UK economy officially in recession after two quarters of shrinking GDP, analysts had thought there was a chance the bank's Monetary Policy Committee may approve new stimulus this month. Most believed that worries about growth would be outweighed by concern over persistently above-target consumer price inflation, now at 3.5 percent.
"The MPC's inaction suggests that for now at least, the committee maintains the overall view that the economy is achieving underlying growth despite apparently being back in recession," said Howard Archer, European economist at IHS Global Insight.
"It also suggests that there is significant concern within the MPC that consumer price inflation will not fall back as far or as quickly as had previously been hoped," Archer said.
With yesterday's decision, the stimulus program - by which the central bank buys assets like government bonds from banks to create new money in the economy - remains at 325 billion pounds (US$524 billion).
The duration and depth of UK's recession and trends in inflation data will be key to the BOE's policy decisions in coming months.
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