BoE

UK interest rates stay at 0.5% record low, quantitative easing extended

Published: 07:19, November 6, 2014

The Bank of England’s Monetary Policy Committee voted on Thursday to keep interest rates at their record low of 0.5% and to extend its quantitative easing program beyond the £375 billion which has been spent already.

Quantitative easing is a last-resort policy in which the central bank buys government (or other) securities from the market. The aim is to pump money into the financial system so that interest rates stay low and the money supply grows. It is a move to stimulate economic growth.

The Monetary Policy Committee has voted to keep the benchmark interest rate at 0.5% every month since March 2009 in its attempt to help push the economic recovery.

A few months ago there was talk among most economist of a UK interest rate hike either before the end of 2014 or very early in 2015. However, recent poor data makes it more likely this will not occur until the second half of next year.

The Markit/CIPS construction PMI for September fell to 61.4 from August’s 64.2. Construction was still growing in September, but at a slower rate compared to the previous five months. Construction of private dwelling was at a one-year low in September.

Earlier this week, data showed that the UK services sector is also slowing down.

George Osborne, the Chancellor of the Exchequer, warned earlier this month that the Eurozone’s anemic economic performance will affect the UK’s outlook.

Industrial output data published on Thursday by the Office for National Statistics showed better-than-expected growth of 0.6% in September from August, driven by a major North Sea oil field which started pumping again, as well as a pickup in automobile production.

Before raising interest rates, Mark Carney, Governor of the Bank of England said he would like to be sure the recovery was solid and sustainable. Wage growth has been below inflation for several years, and shows no signs of changing, suggesting there is still plenty of slack in the labor market.

It will be interesting to see how the two MPC hawks voted today. Mr. McCafferty and Martin Weale voted to raise the benchmark rate to 0.75% in the last two monthly meetings. Mr. McCafferty is concerned the BoE might be stoking inflation for tomorrow, and adds that when rates do rise they should not do so abruptly, hence it would be better to start gradually now.

We will not know how the MPC members voted until Wednesday, November 19th, when the minutes of today’s meeting are published.

Christian Nordqvist Avatar

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