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| Bank keeps interest rates on hold | Bank keeps interest rates on hold |
| (20 minutes later) | |
| The Bank of England's interest rate setters have kept the cost of borrowing unchanged at 0.5% for the fourth month in a row. | The Bank of England's interest rate setters have kept the cost of borrowing unchanged at 0.5% for the fourth month in a row. |
| It added it was not planning to extend its quantitative easing scheme under which it creates money to buy bonds in order to stimulate the economy. | It added it was not planning to extend its quantitative easing scheme under which it creates money to buy bonds in order to stimulate the economy. |
| It will continue with its current plan to spend £125bn. Some had expected it would increase that amount. | It will continue with its current plan to spend £125bn. Some had expected it would increase that amount. |
| But the move allows it to pause and assess economic data, observers said. | But the move allows it to pause and assess economic data, observers said. |
| The Bank's Monetary Policy Committee (MPC) could have increased its quantitative easing spending by an additional £25bn without asking the Treasury. | The Bank's Monetary Policy Committee (MPC) could have increased its quantitative easing spending by an additional £25bn without asking the Treasury. |
| INSTANT VIEW Stephanie Flanders, BBC economics editor. The MPC has deferred a major decision on the future of QE until the August meeting, when they will have the new economic forecasts in the Inflation report in front of them. Many had expected them to authorise a further £25bn in purchases, to lessen market uncertainty in early August when the existing £125bn will have been spent. They could then have discussed at the August meeting whether to ask the chancellor to underwrite purchases of more than £150bn, or to put the policy on hold. It is interesting that they did not feel able to pre-announce any additional purchases under QE at this time, despite the risk of creating market uncertainty between now and August. Clearly, they do not consider the continuation of the policy to be a done deal. What is quantitative easing? | INSTANT VIEW Stephanie Flanders, BBC economics editor. The MPC has deferred a major decision on the future of QE until the August meeting, when they will have the new economic forecasts in the Inflation report in front of them. Many had expected them to authorise a further £25bn in purchases, to lessen market uncertainty in early August when the existing £125bn will have been spent. They could then have discussed at the August meeting whether to ask the chancellor to underwrite purchases of more than £150bn, or to put the policy on hold. It is interesting that they did not feel able to pre-announce any additional purchases under QE at this time, despite the risk of creating market uncertainty between now and August. Clearly, they do not consider the continuation of the policy to be a done deal. What is quantitative easing? |
| But the Bank did not announce an extension of the programme this month because it wanted to see whether it was working, said Bronwyn Curtis, head of global markets at HSBC. | But the Bank did not announce an extension of the programme this month because it wanted to see whether it was working, said Bronwyn Curtis, head of global markets at HSBC. |
| "I don't think they know yet [whether quantitative easing is working]," she said. | "I don't think they know yet [whether quantitative easing is working]," she said. |
| "The other thing about pausing is that they can always do more if the economic data deteriorates again." | "The other thing about pausing is that they can always do more if the economic data deteriorates again." |
| 'Extension needed' | 'Extension needed' |
| The British Chambers of Commerce said it disagreed with the decision not to use the extra amount available to try and further stimulate the economy. | The British Chambers of Commerce said it disagreed with the decision not to use the extra amount available to try and further stimulate the economy. |
| "Quantitative easing is not yet fully effective and there is a strong case for raising the proportion of private sector assets that the MPC purchases," said the BCC's chief economist David Kern. | "Quantitative easing is not yet fully effective and there is a strong case for raising the proportion of private sector assets that the MPC purchases," said the BCC's chief economist David Kern. |
| "It is important to significantly increase the programme's size, so as to underpin business confidence." | "It is important to significantly increase the programme's size, so as to underpin business confidence." |
| He called on the chancellor to extend the scheme by a further £50bn to £200bn. | He called on the chancellor to extend the scheme by a further £50bn to £200bn. |
| Business group, the CBI, said it was too early to determine the effects of quantitative easing on the wider economy, but agreed more was needed. | Business group, the CBI, said it was too early to determine the effects of quantitative easing on the wider economy, but agreed more was needed. |
| "A further extension through the autumn is needed, and clear communication of the Bank's intentions throughout will be critical in order to prepare the markets," said the CBI's chief economic adviser, Ian McCafferty. | "A further extension through the autumn is needed, and clear communication of the Bank's intentions throughout will be critical in order to prepare the markets," said the CBI's chief economic adviser, Ian McCafferty. |
| QE explained in 108 seconds | QE explained in 108 seconds |
| 'Overall caution' | 'Overall caution' |
| Pegging rates at 0.5% had been widely expected. | Pegging rates at 0.5% had been widely expected. |
| Geoff Tresman, of Punter Southall Financial Management said that holding rates was inevitable as the economy "continued to navigate its way through the serious repercussions of the massive hike in borrowing and long term build up of public debt". | Geoff Tresman, of Punter Southall Financial Management said that holding rates was inevitable as the economy "continued to navigate its way through the serious repercussions of the massive hike in borrowing and long term build up of public debt". |
| "It may appear to many that green shoots are appearing and this may prove to be the case," he added. | |
| "But it is impossible to tell whether the dim light at the end of the tunnel is the way out or an oncoming train." | |
| Earlier this week, the British Chambers of Commerce (BCC) business group said that the worst of the UK's recession was over, but added that talk of a recovery was premature. | Earlier this week, the British Chambers of Commerce (BCC) business group said that the worst of the UK's recession was over, but added that talk of a recovery was premature. |
| Latest official data showed the UK economy contracted by 2.4% in the first three months of the year, a decline not exceeded for 51 years. | |
| Also, UK unemployment rose to 2.261 million in the three months to April. This was the highest level since November 1996. | |
| There has also been some stabilisation in the housing market, and while prices fell in June from May, according to the Halifax, the annual rate of decline eased from 16.3% to 15%. | There has also been some stabilisation in the housing market, and while prices fell in June from May, according to the Halifax, the annual rate of decline eased from 16.3% to 15%. |