The Bank of England announced its interest rates on Thursday and kept the benchmark rate unchanged at the historic low of 0.5 percent as expected. However, investors were more concerned about whether the central would announce an expansion to its existing 275 billion pound quantitative easing programme to prop up Britain’s fragile economy.
The BoE’s Monetary Policy Committee (MPC) disappointed markets and did not change policy. Interest rates have been at the same rate since March 2009. Minutes of the January MPC meeting will be published on January 25.
Sterling was little changed after the rate announcement at 12:00 GMT. GBPUSD edged up slightly to 1.5366 within 25 minutes from 1.5349.
In a brief statement, the Bank of England said the asset-purchase program “will be kept under review.”
But with the economy faltering, the BOE is soon expected to provide more stimulus in the form of additional bond buys.
Following are economists’ reactions to the decision.
CHRIS WILLIAMSON, MARKIT
“The most likely scenario still seems to be that the MPC will vote to increase the size of its asset purchase programme by another 50-75 billion pounds at its February meeting, after the current round of QE is completed, but anticipating the next move has become increasingly difficult in recent weeks.”
“The big uncertainty is whether the surprise improvement in the business surveys will last, as concerns about weak growth are likely to outweigh inflation worries among policymakers. Much will therefore depend on how events in the eurozone unfold in coming months.
“Today’s successful Spanish bond auction may help to boost confidence in the euro area’s prospects, but the outlook for the region remains highly uncertain and the direction of UK monetary policy will probably be guided more by the situation in the single currency area than anything else.”
PHILIP SHAW, INVESTEC
“Overall 50 billion pounds more QE next month seems to us to be virtually ‘baked in the cake’. Moreover steep declines in inflation should facilitate a further 50 billion pounds of asset purchases in May, taking the QE target to 375 billion pounds. We continue to view this as the final instalment of the Bank’s asset purchases, but they could be maintained for longer if the recession becomes more entrenched than we expect.”
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