The Bank of England’s Monetary Policy Committee (MPC) has decided to hold interest rates at the record low 0.5% for the 30th consecutive month whilst confirming that the bank will not be extending its £200bn programme for quantitative easing.
The decision comes as no surprise to leading economists, who expected rates to remain unchanged amid fear about the strength of the current economy and the slowing recovery.
Weakened economy with slow growth
On Tuesday, Chancellor George Osborne admitted that the UK’s economy had weakened whilst short-term forecasts for growth had been revised down. Economists expect there to be an active discussion of options for injecting more stimulus into the economy, as conditions weaken sharply in the United States and euro zone as financial markets remain turbulent.
Official data confirmed that the economy grew by 0.2% between April and June, down from 0.5% in the first three months of 2011. Indicators such as services and manufacturing also suggest that growth is slowing further. Figures on the service sector in August, which accounts for about 75% of economic output, indicate that activity suffered its largest monthly fall in a decade.
Suggestions of restarting quantitative easing
As a result of the finding from recent economic data, analysts have suggested the Bank may be looking at restarting its quantitative easing programme in order to boost demand by pumping money into the economy.
However, Ian McCafferty, chief economic adviser to the CBI business group, said: “Although recent data has brought further evidence of slower economic activity and business confidence has weakened, it is not clear that this requires an immediate policy reaction.
“We hope the UK economy will be on a firmer footing by next year, when a lower inflation rate will bring some relief for households.”
ECB keeps eurozone interest rates unchanged
The European Central Bank has also followed in keeping interest rates unchanged at 1.5% for the second consecutive month after being raised from 1.25% in July to tackle inflation amid the debt crisis.