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Bank of England keeps interest rates and QE unchanged Bank of England keeps interest rates and QE unchanged
(35 minutes later)
The Bank of England has kept its stimulus programme of quantitative easing (QE) unchanged and also held interest rates at 0.5%.The Bank of England has kept its stimulus programme of quantitative easing (QE) unchanged and also held interest rates at 0.5%.
The decision had been widely predicted, with most analysts not expecting any change in policy until the new Bank governor, Mark Carney, arrives in July.The decision had been widely predicted, with most analysts not expecting any change in policy until the new Bank governor, Mark Carney, arrives in July.
The first quarter GDP figures, showing growth of 0.3%, were also felt to have reduced the need for more QE.The first quarter GDP figures, showing growth of 0.3%, were also felt to have reduced the need for more QE.
In addition, recent data has suggested the UK economy is picking up.In addition, recent data has suggested the UK economy is picking up.
Figures from the Office for National Statistics released earlier on Thursday, said industrial output rose 0.7% in March from February, a bigger increase than forecast. Manufacturing output rose by 1.1%.Figures from the Office for National Statistics released earlier on Thursday, said industrial output rose 0.7% in March from February, a bigger increase than forecast. Manufacturing output rose by 1.1%.
In addition, recent sector surveys have indicated that conditions improved last month in the service, manufacturing and construction sectors.In addition, recent sector surveys have indicated that conditions improved last month in the service, manufacturing and construction sectors.
The Bank's Monetary Policy Committee (MPC) has been split in recent months over whether to increase its QE programme from the current level of £375bn.The Bank's Monetary Policy Committee (MPC) has been split in recent months over whether to increase its QE programme from the current level of £375bn.
Three members - including governor Sir Mervyn King - of the nine member MPC have voted for an extra £25bn of QE at the past few meetings.Three members - including governor Sir Mervyn King - of the nine member MPC have voted for an extra £25bn of QE at the past few meetings.
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In March's Budget, the Bank of England's remit was altered by Chancellor George Osborne, allowing it to consider using more unconventional monetary tools to boost the economy.In March's Budget, the Bank of England's remit was altered by Chancellor George Osborne, allowing it to consider using more unconventional monetary tools to boost the economy.
The MPC meeting was the penultimate one for Sir Mervyn.
Fund management firm Investec said that it expected more QE to be introduced once the new governor took up his role.Fund management firm Investec said that it expected more QE to be introduced once the new governor took up his role.
"We suspect following the arrival of the new governor Mark Carney we will see a sustained push to try and achieve a step-up in growth... in the shape of £75bn of further QE purchases, sanctioned in two tranches from August onwards," Investec said."We suspect following the arrival of the new governor Mark Carney we will see a sustained push to try and achieve a step-up in growth... in the shape of £75bn of further QE purchases, sanctioned in two tranches from August onwards," Investec said.
But the chief economist at the British Chambers of Commerce, David Kern, said Mr Carney should not be tempted to do this.But the chief economist at the British Chambers of Commerce, David Kern, said Mr Carney should not be tempted to do this.
"Following the changes in the MPC's remit announced in the Budget, it is worrying that the demand for more QE could be part of a wider policy shift where higher inflation and a weaker pound are tolerable," he said."Following the changes in the MPC's remit announced in the Budget, it is worrying that the demand for more QE could be part of a wider policy shift where higher inflation and a weaker pound are tolerable," he said.
"Instead, incoming governor Mark Carney should make better use of the existing QE programme, and use measures other than QE alone to support a revival of business lending.""Instead, incoming governor Mark Carney should make better use of the existing QE programme, and use measures other than QE alone to support a revival of business lending."
Weakness
Last month, the Bank of England announced plans to expand its Funding for Lending Scheme, which is designed to improve lending to businesses and households.Last month, the Bank of England announced plans to expand its Funding for Lending Scheme, which is designed to improve lending to businesses and households.
Some believe the FLS programme could be a more effective way of boosting the economy than QE.Some believe the FLS programme could be a more effective way of boosting the economy than QE.
Capital Economics' UK economist, Martin Beck, said Mr Carney would find it hard to prompt the MPC to pump more money into the economy.
He said: "The MPC's continued inaction shows it has limited appetite for helping the economy to break out of its current insipid state.
"Upon his arrival in July, Mark Carney may have his work cut out in persuading the committee of the merits of a more activist approach."
The latest data on the economy showed it avoided falling into its third recession since the financial crisis started five years ago.
Gross domestic product (GDP) was up 0.3% in the first three months of this year, after falling the same amount in the last quarter of last year.
Inflation, which the Bank is currently charged with keeping at around 2%, held steady at 2.8% in March, but has been above target since November 2009.
The Bank has not attempted to keep inflation on target with its traditional weapon of higher interest rates, as these also have the effect of reining in growth.