Bank of England and ECB opt to leave interest rates unchanged

2nd August 2013

The Bank of England’s Monetary Policy Committee (MPC) has voted to keep interest rates in the UK at their current record low of 0.5 per cent – the key borrowing rate since March 2009.
Amid signs of recovery in the UK economy, the Bank also decided against an additional round of Government bond-buying, with both decisions widely anticipated in the financial markets.
The MPC will continue with its £375bn of monetary stimulus through its quantitative easing programme following the second MPC meeting chaired by new governor, Mark Carney.
However, there was no statement forthcoming from Carney, unlike the previous month when the MPC surprised the City and sent shares rallying after saying rates would stay low for longer than investors had predicted.
The MPC will however make an announcement next week on whether it will adopt a policy of "forward guidance", a ploy that gives clues about future moves and helps investors to plan ahead with greater certainty.
Robert Wood, chief UK economist at Berenberg, said: "In our view, the most likely result is that the Bank of England ties interest rates to a relatively cautious unemployment threshold of 7%.
"The aim will be to try and keep market interest rate expectations low to allow the nascent recovery to blossom into something stronger and more sustainable."
Meanwhile, the Institute of Directors’ chief economist, Graeme Leach believes more light will be shed on the overall state of the economy once the Bank unveils its key inflation report.
"This is when we’ll see how much the Bank’s view of the economy has improved since the last report in May," he said.
"Given the sustained improvement in the broad money supply we’ve seen this year, the Bank should be raising its growth forecast."

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