Bank of England keeps record low rates

December 9, 2010

, LONDON, Dec 9 – The Bank of England voted on Thursday to keep its key interest rate at a record low level of 0.50 percent amid expectations Britain\’s robust economy recovery will slow down in 2011.

Its policymakers also decided to maintain the size of the central bank\’s economic stimulus programme at 200 billion pounds (238 billion euros, 315 billion dollars).

Both announcements had been widely expected, while minutes of the meeting to be published on December 22 will explain the bank\’s reasons.

"The Bank of England\’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the BoE said in a statement issued after a two-day meeting.

"The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at 200 billion pounds."

The Bank of England (BoE) sat tight amid fervent consumer spending ahead of Christmas, and before the introduction of British tax hikes and cuts to government spending in 2011.

Rates have stood at 0.50 percent since March 2009, when the central bak also launched its extraordinary stimulus programme, in the form of quantitative easing (QE), in a bid to drag Britain out of a deep recession.

Under QE, the bank has created some 200 billion pounds of new money by purchasing government bonds and high-quality private sector assets.

With Britain expected to experience slower growth in 2011, economists are predicting that the BoE could resort to more QE in the months ahead.

Britain\’s economy expanded by a robust 0.8 percent in the third quarter compared with the previous three months, and expanded 2.8 percent compared with a year earlier.

However, the government expects growth to slow more than expected in 2011 and 2012 as sweeping austerity measures begin to bite.

Britain escaped from a record-length recession late last year after a fierce worldwide downturn that was sparked by the global financial crisis.

However in a bid to slash a record-high public deficit, the coalition government has launched the biggest public spending cuts in decades.

It has also unveiled plans to increase sales tax to 20 percent from the current 17.5 percent on January 4, 2011, a move many economists expect to dent consumption significantly.


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