Bank of England holds interest rate at 0.5%

The Bank of England’s Monetary Policy Committee (MPC) voted on Thursday to keep the UK’s benchmark interest rate at its record-low of 0.5%. The MPC also decided not to extend its quantitative easing program beyond the £375 billion that has already been spent.

The Bank of England’s (BoE’s) benchmark interest rate has been at 0.5% since March 2009. Experts believe it will be raised early in 2015 if the economy continues expanding.

The BoE will reveal how the members of the MPC voted today in two weeks’ time.

In August and September, two members – Martin Weale and Ian McCafferty – voted to raise the rate to 0.75%, while the other seven opted to keep them unchanged.

There was growing speculation this month that the number of hawks in the MPC would increase this time round.

Mark Carney, the Governor of the BoE, probably voted to keep rates unchanged.

A few months ago, markets had expected the BoE to raise rates in the second half of 2015. Now, most bets are on a hike during the first quarter. Some economists believe the MPC will vote for a move later this year.

With general elections set for May 2015, many wonder whether fiscal tightening might occur well beforehand, perhaps at the end of 2014.

So far in 2014, the British economy has grown strongly, faster than any of the other G7 nations. In the second quarter GDP expanded by 0.9% (q-o-q), and by 0.7% in the first quarter.

Recently, however, factory output growth has slowed significantly, and house prices fell by 0.2% in September, the first decline in 16 months.

Inflation, at 1.5%, remains low, while wages for the last four years have not managed to keep up with price rises.

The Bank of England made the following statement on Thursday:

“The Bank of England’s Monetary Policy Committee at its meeting on 8 October voted to maintain Bank Rate at 0.5%.  The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion. The minutes of the meeting will be published at 9.30 a.m. on Wednesday 22 October.”

Chancellor warns of UK economic slowdown

In an interview with the BBC today, George Osborne, UK’s Chancellor of the Exchequer, warned that Britain is not immune to the global economic slowdown.

He said there is a serious risk that Germany’s recent weakness, plus the Eurozone’s stagnation could harm Britain’s economic rebound.

Mr. Osborne urged the European Central Bank to play its part in helping push the Eurozone out of its current malaise.

Mr. Osborne said:

“You need credible fiscal plans, and the Germans would certainly agree with me on that, but I think you also need the European Central Bank doing its bit to help. Fiscal credibility and monetary support go hand in hand, they’re two sides of the same coin.”