Bank of England targets growth as rate stays put
Source: Bloomberg News |
June 10, 2011, Friday
|
Print Edition
Print Edition
THE Bank of England kept its benchmark interest rate at a record low as data pointing to a loss of momentum in the recovery kept policymakers focused on aiding economic growth.
The nine-member monetary policy committee, led by Governor Mervyn King, held the key rate at 0.5 percent. The bank also left its bond-purchase program at 200 billion pounds (US$328 billion).
King's push to keep interest rates unchanged to bolster the recovery won the backing of the International Monetary Fund, which said it was appropriate to maintain the "current scale of monetary stimulus."
The European Central Bank is also set to keep its benchmark interest rate unchanged at 1.25 percent.
The pace of the UK recovery may be curbed by Chancellor of the Exchequer George Osborne's spending cuts to reduce the budget deficit. He said this week he will stick to the fiscal plan, which the IMF said "remains essential to achieve a more sustainable budgetary position."
The UK economy stagnated in the six months to the end of March, while consumer spending slumped the most in almost two years in the first quarter.
Surveys last week pointed to a further weakening, with manufacturing expanding at its slowest pace in 20 months in May. Markit Economics Ltd, which published the data, said it indicated economic growth this quarter may not exceed 0.3 percent.
Home Retail Group Plc said yesterday that sales at its UK store chain Argos declined in the first quarter as trading conditions were "more difficult and volatile than expected."
"While the headline rate of inflation is high, consumer spending is flat, consumer confidence is fragile, and the impact of the fiscal retrenchment is starting to come through," said David Tinsley, an economist at National Australia Bank in London.
The bank's rate setters "should sit tight."
The majority of the committee favoured keeping the key rate unchanged as the budget squeeze restrains growth and plans to cut more than 300,000 public sector jobs erode confidence. Sentiment has also been weakened by an inflation rate that rose to 4.5 percent in April.
The nine-member monetary policy committee, led by Governor Mervyn King, held the key rate at 0.5 percent. The bank also left its bond-purchase program at 200 billion pounds (US$328 billion).
King's push to keep interest rates unchanged to bolster the recovery won the backing of the International Monetary Fund, which said it was appropriate to maintain the "current scale of monetary stimulus."
The European Central Bank is also set to keep its benchmark interest rate unchanged at 1.25 percent.
The pace of the UK recovery may be curbed by Chancellor of the Exchequer George Osborne's spending cuts to reduce the budget deficit. He said this week he will stick to the fiscal plan, which the IMF said "remains essential to achieve a more sustainable budgetary position."
The UK economy stagnated in the six months to the end of March, while consumer spending slumped the most in almost two years in the first quarter.
Surveys last week pointed to a further weakening, with manufacturing expanding at its slowest pace in 20 months in May. Markit Economics Ltd, which published the data, said it indicated economic growth this quarter may not exceed 0.3 percent.
Home Retail Group Plc said yesterday that sales at its UK store chain Argos declined in the first quarter as trading conditions were "more difficult and volatile than expected."
"While the headline rate of inflation is high, consumer spending is flat, consumer confidence is fragile, and the impact of the fiscal retrenchment is starting to come through," said David Tinsley, an economist at National Australia Bank in London.
The bank's rate setters "should sit tight."
The majority of the committee favoured keeping the key rate unchanged as the budget squeeze restrains growth and plans to cut more than 300,000 public sector jobs erode confidence. Sentiment has also been weakened by an inflation rate that rose to 4.5 percent in April.
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