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December 24, 2009

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UK money chiefs unite to hold line on interest

BANK of England policy makers were unanimous in their decision this month to keep interest rates steady at 0.5 percent and leave a 200 billion pound (US$325 billion) asset purchase program unchanged, according to minutes of their monthly meeting released yesterday.

The minutes from the December 9-10 meeting showed all nine members of the Monetary Policy Committee agreed little had changed since November when they expanded the so-called quantitative easing program by 25 billion pounds.

Members had been split over that November decision, with one calling for no expansion and another advocating a 40 billion pound increase.

The minutes of the December meeting said all nine members agreed the medium-term outlook for inflation and activity had "changed little" since November.

"For those members who had preferred a different policy action at the November meeting, a slightly different scale of asset purchases could still be justified," the minutes said.

"But the lack of significant news on the month meant that the case for deviating from the program of asset purchases announced in November was outweighed by the benefits of completing it as planned."

The bank has said it will complete the current asset purchase program, which expands the money supply by essentially creating new money to buy assets, usually gilts, by early February.

Economists don't expect any change in the size of the program until then. Interest rates, meanwhile, are expected to remain at record low levels well into 2010 as Britain makes a slow recovery out of its worst downturn since World War II.

Britain is the only major economy still officially in recession, although both the central bank and the government expect a return to growth in the current fourth quarter.


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