Bank Of England Holds Interest Rate Again
The Bank of England (BoE) has held monetary policy steady, keeping the base rate of interest at its record low.
The Monetary Policy Committee maintained the Bank Rate at 0.5% and the size of its asset purchase programme - or quantitative easing (QE) - at £375bn.
It comes after a run of disappointing figures relating to the manufacturing, construction and services sectors, which cast doubt on the chances of a sustained economic recovery.
The decision to make no changes will increase focus on next month's meeting of the Committee, at which most economists expect the BoE to pump more cash into the system through QE.
It is currently working through £50bn of asset purchases it announced in July.
But the BoE's governor Sir Mervyn King insisted that there were "a few signs" of recovery last week, as official GDP figures were revised upwards for the second quarter to a better-than-expected fall of 0.4%.
Meanwhile, the European Central Bank also announced that it would keep its key lending rate unchanged at 0.75%.
The BoE's decision met the expectations of the Sky News Money Panel.
Sir Martin Sorrell, founder and chief executive of advertising group WPP, said no changes to monetary policy were expected because "enough is being done elsewhere in the eurozone, Japan and the US for the moment."
He said there could be more QE in the coming months, but warned it does not deal with the real causes of the problem.
"That's its weakness - it avoids dealing with difficult issues and may stimulate inflation," he said.
Consumer prices index inflation has more than halved to 2.5% from 5.2% last September, but is forecast to start rising again by the end of the year - which could make the BoE cautious about announcing more QE.
James Daley, editor of Which? Money, said that without QE "we would likely have suffered an even deeper recession than we have".
But he added that a side effect is a reduction in annuity rates: "For those who have not had access to good employer pension, and haven't managed to save much, the drop in annuity rates is a real blow."
Ross Walker, UK economist at Royal Bank of Scotland, was optimistic about the UK's GDP in the third quarter, predicting a 0.7% rise.
"It will more than recover from the 0.4% fall last quarter," he said. "Early data suggest a relatively buoyant contribution to growth in the third quarter from industrial production and a rise in output in the service sector."
He said the risks of a full-blown financial crisis out of the eurozone had receded in recent months, but added: "Structural reforms facing many euro area economies are daunting and the region's general economic situation continues to look relatively weak".
Anthony Thomson, the co-founder of Metro Bank, said we had yet to see the full effects of QE to the UK economy.
But he was positive Britain's GDP, predicting growth of between 0.75% and 1% in the third quarter.
While Louise George, the owner of Peter Popple's Popcorn, said she expected the UK economy to grow by 0.5%.
She said that QE has had relatively limited direct support for smaller firms.
"It has provided some indirect support by kick starting spending and activity in the economy," she said. "But lots of small and medium-sized enterprises are dependent on bank credit so can't benefit from these effects."
Ms George added that her business had been hit by this summer's unseasonable weather.
"The drought and heatwave in the US has destroyed much of the country's corn crop, hence pushing up the price at which we buy corn and raising our costs dramatically," she said.
what do you think?
shame they didnt reduce it to 0.25% - there's time
The Bank always raise the rates too late and reduce them too late.
QE goes to millionaires and destroys private pensions. The base rate is destroying investments and savings and businesses. They say that if the base rate increases it will harm mortgages but they have already increased by nearly 100% and the sterling is now collapsing.
If the Banks are being accussed of LIBOR fixing then the Government needs to look at itself for fixing Base Rate at an artifically low rate just to "look good" Real Interest Rates are, and should be higher!