The Bank of England’s interest rate decision was announced today, and as expected kept the key rate on hold at a historic low of 0.50 percent. Since the financial crisis of 2009, BOE policy makers have consistently kept rates unchanged.
Economists had forecast rates to remain unchanged today as well as the current government bond buying programme.
Sterling jumped 18 pips against the dollar within a minute of the announcement at 12:00 GMT, rising to 1.5717 from 1.5699. GBPUSD continued to rise to 1.5734 by 13:00 GMT.
In today’s monetary policy meeting, the MPC members made the decision to also keep its asset purchase program untouched. In the previous policy meeting, the central bank added an extra 75 billion pounds to its quantitative easing programme which is scheduled to run a four-month period until February 2012.
The bank prefers to wait until the programme comes to an end before extending QE, if it decides to do so, though speculation is that it would.
The UK economy has not been faring well, and a recent spate of weak economic data indicate the sluggishness in economic recovery and even signal that the country is heading into a recession.
The BOE and Britain’s independent government forecaster have both slashed their growth forecasts over the past month. Furthermore, the OECD has mentioned that based on its analysis, it believes the UK has already entered a mild recession.
Inflation in the country hovers near a three-year high at 5 percent, but the BOE forecasts it will drop next year to below its 2 percent target because of economic weakness and fading one-off effects that have pushed up prices over the past year.