Bank of England stand-by on optimism over a solution to the Euro debt crisis
The Bank of England has resisted injecting further emergency liquidity to the UK economy as optimism over finding a solution to the Euro zone debt crisis grew.
Bank governor Sir Mervyn King and his colleagues on the Monetary Policy Committee (MPC) held the quantitative easing (QE) stock at £325 billion and maintained interest rates at record lows of 0.5%.
The official release said that “BoE MPC today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £325 billion. The minutes of the meeting will be published on Wednesday 20 June”.
While the decision echoed that of the European Central Bank on Wednesday, China's central bank moved to shore up its powerhouse economy by slashing its benchmark interest rate for the first time since 2008, dropping the one-year deposit rate to 3.25% from 3.5%.
World markets were boosted by the move, as well as improved sentiment in the European continent where political leaders were holding talks over the future of the single currency, including tackling the banking crisis in Spain, probably with a bail-out agreement over the week-end.
Chancellor George Osborne has said he is optimistic a solution will be found to the Spanish banking crisis, while Prime Minister David Cameron pushed his Euro zone counterparts to act quickly.
Sir Mervyn has frequently cited the Euro zone's woes as the biggest threat to the UK economic recovery and has urged political leaders to form an urgent response.
Pressure on the Bank to implement more stimulus measures has been mounting in recent weeks after official figures showed the UK's double-dip recession was deeper than previously thought, with a 0.3% fall in the first quarter of 2012, and a survey revealed a sharp contraction in the manufacturing sector.
But hopes for the UK recovery were boosted on Thursday when a closely-watched survey of the powerhouse services sector in May revealed robust growth, allaying some concerns over a worse-than-expected report on the smaller manufacturing sector last Friday.
Anna Leach, the CBI's head of economic analysis, said the MPC's decision would have been a tricky one. She said: It seems that a 'wait and see' position has been adopted for the moment.
The ongoing crisis in the Euro area will continue to put pressure on fragile business conditions for the foreseeable future. But we still expect the UK economy to improve modestly later in the year, with further falls in inflation providing some support to family incomes”.
Likewise another encouraging data was that UK new car sales jumped to 162.288 in May, 7.9% rise compared with May 2011, according to the Society of Motor Manufacturers and Traders (SMMT).
This was the largest percentage increase in registrations for 23 months, thanks largely to a 14.3% increase in private sales, says SMMT. The sharp rise in May brings the total for 2012 up to 868,166, a 2.6% rise over the same period last year. The fleet market was up 4.8%, ending a three-month decline.
May's 7.9% increase in new car registrations is good news for the motor industry and the UK economy, said Paul Everitt, SMMT chief executive.
The consistent climb in new car registrations during the first five months of the year suggests that confidence is returning, despite financial uncertainty in the Euro zone. The best-selling car in May was the Vauxhall Corsa, but the Ford Fiesta remains the UK's most popular new car in 2012, with 50,507 sold so far.