The Bank of England as anticipated, kept interest rates unchanged today at a record-low 0.5 percent.
The news may not have come as a surprise, however what was more important news was that the bank’s monetary policy committee decided to introduce more easing by expanding its bond buying program.
The Monetary Policy Committee voted in favour of buying 75 billion pounds more in assets resulting in a total of a 275 billion pound asset purchase program in order to stimulate the struggling British economy.
A series of weak UK economic data in recent months highlighted the need to protect the British economy from the euro zone crisis and help stimulate its recovery.
The British economy has been flat for the past twelve months and many policy makers have shifted their view from raising interest rates to more easing.
The BoE has kept interest rates at 0.5 percent for more than 2-1/2 years now and has not changed that today.
Since February 2010, the BoE has kept asset purchases at 200 billion pounds but has announced today that it has decided to expand this program to deal with the sluggish economy rather than raise rates.
Sterling tumbled over 180 pips after the MPC announcement. GBPUSD fell to 1.5279 within a minute of the news from 1.5462.
Quantitative easing weakens sterling because as a result of the Bank of England’s bond buying program, it effectively floods the system with more pounds.