Bank of England leaves rates at 0.5 percent

Published 07th Oct 2010

The Bank of England left interest rates at 0.5 percent for a 20th consecutive month on Thursday and kept its asset-buying programme on hold, but the outcome probably masked a vigorous debate about whether economic conditions require tighter or looser policy.

Mixed economic data combined with persistently high inflation have muddied the waters for BoE policy at a time of uncertainty over the global recovery and the impact of government spending cuts.

The unchanged interest rate verdict was predicted by all 61 economists in a Reuters poll. Most economists expect rates to stay at 0.5 percent until well into 2011 and only around a third think the bank will extend its quantitative easing programme -- capped at 200 billion pounds in February -- in the future.

Earlier this week, the Bank of Japan cut interest rates close to zero and said it would pump more money into the economy. The Federal Reserve has also indicated a willingness to consider further stimulus to shore up its faltering recovery.

A breakdown of BoE policymakers' votes will not be published for another two weeks but could show the first three-way split since November 2009.

Analysts expect Andrew Sentance to have reiterated his call for an interest rate rise but think Adam Posen -- who warned last week Britain risked the same kind of stagnation Japan suffered in the 1990s -- may have broken ranks to vote for more QE.

Britain's economy grew by a surprisingly strong 1.2 percent in the second quarter but growth is expected to slow sharply in the second half of the year.

House prices in Britain plunged a record 3.6 percent in September, according to mortgage lender Halifax, and consumer confidence has weakened in the run-up to the government's October 20 public spending review which will detail the toughest austerity drive since World War Two.

The focus will now shift to the BoE's November policy decision when the results of the spending review will be known and policymakers will be armed with updated quarterly growth and inflation forecasts.

Source: ' Reuters '

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