As expected, the Bank of England held its benchmark interest rate unchanged at 0.5% , on reasons that the British economy is has recently shown signs of weakness and sluggish growth.
The record low rate has remained the same for the past twenty seven months and is expected to remain so until at least the end of the year as there are no concerns about above-target inflation. Some economists do not expect a rate hike before May 2012.
The U.K. economy will need time to recover based on a recent spate of weak economic data indicating a decline in manufacturing and services activity
Eventhough inflation is predicted to hit around 5 percent later in the year, due to rising utilities (for gas and electricity) consequently from elevated oil prices earlier this year, the BoE forecast that inflation would be back on target within the next two years.
Meanwhile, the BoE made no change to its asset purchase facility program and maintained the 200 billion pounds of quantitative easing that it pumped into the economy between March 2009 and February 2010.
The focus will now be in the European Central Bank’s decision later on interest rates.
Upon release of the news at 11:00 GMT, the Pound weakened only slightly as markets already factored in the fact that rates would remain unchanged. GBP dropped 6 pips against the Dollar from 1.6405 to 1.6399. EURGBP rose from 0.8893 to 0.8895.