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No change to bank rates and quantitative easing. Pearson May News Update - Friday 8 June
Pearson May news blog
No change to bank rates and quantitative easing
The Bank of England's Monetary Policy Committee (MPC) has voted to keep interest rates unchanged at 0.5 per cent and quantitative easing (QE) has not been extended.
Interest rates have sat at their current historic low for more than three years after the base rate was cut to 0.5 per cent in March 2009. The bank started its QE programme in the same month, injecting a total of £325 billion to date.
Leading economists had speculated that further economic stimulus in the form of QE would be agreed by the bank following poor performance in the manufacturing and construction sectors, as indicated by the purchasing managers' index (PMI) earlier in the week.
The Confederation of British Industry (CBI) said that the MPC's decision would have been 'tricky' as both official and survey data continue to present a mixed picture of the economy.
The CBI's head of economic analysis, Anna Leach, said: "It seems that a 'wait and see' position has been adopted for the moment.
"The ongoing crisis in the Euro area will continue to put pressure on fragile business conditions for the foreseeable future.
"But we still expect the UK economy to improve modestly later in the year, with further falls in inflation providing some support to family incomes."
Last week, the International Monetary Fund (IMF) suggested that authorities should consider additional rounds of QE and cutting interest rates even further to 0.25 per cent to encourage growth in the UK's weak economy.
The UK entered a double-dip recession as figures from the Office for National Statistics (ONS) indicated economic growth decreased by 0.2 per cent in the first quarter of 2012 - the second consecutive quarter of negative growth following a 0.3 per cent contraction in the fourth quarter of last year.
The ongoing low base rate - the measure in which banks use to set interest rates - means that many savers are seeing their funds lose value against a higher rate of inflation. In addition, QE - the buying of gilts, effectively injecting cash into the economy - which is designed to kick start the economy, has also been accused eroding the value pension funds.
Talking to the Financial Times, Citi economist Michael Saunders speculated that further rounds of QE may be introduced later in the year.
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