MercoPress. South Atlantic News Agency

Ample support for Bank of England’s decision to leave monetary policy unchanged

CBI economist Ian McCafferty says UK economic recovery is likely to be slow and drawn out

The Bank of England announced Thursday its decision to hold the base rate of interest at its current historic low of 0.5%. The Monetary Policy Committee also opted against altering its quantitative easing programme, under which it has already created £200 billion to pump into the economy.

“The Committee also voted to continue with its program of asset purchases totalling £200 billion financed by the issuance of central bank reserves. MPC expects the announced program to take another month to complete”, said the official release.

The nine-member committee's decision not to tinker with monetary policy was widely predicted. The move leaves the interest rate unchanged for the 10th month in a row and suggests the Bank is treating recent signs of a tentative recovery with caution.

It comes despite figures this week showing a two-year high for manufacturing activity, recovering mortgage lending and a raft of positive Christmas trading updates from across the high street.

Although the UK is expected to have finally emerged from recession in the final quarter of 2009, many predict the MPC will leave interest rates on hold well into this year to avoid threatening recovery.

Confederation of British Industry economist Ian McCafferty summed up the consensus saying: “Recovery in the UK is likely to be slow and drawn out, similar to that following the 1980s recession”.

”The economy will have to absorb a good deal of structural adjustment - as banks rebuild their capital and reduce their leverage, consumers restore their savings, companies adapt to higher costs of capital and reduced gearing and the public sector rectifies its deficit.“

Britain’s Manufacturers’ organization EEF supported the Bank's decision.

”The recovery is now underway, but its strength remains in doubt,“ said Lee Hopley, chief economist of the manufacturers' organisation, the EEF.

”There are a number of potential pitfalls even as the UK economy starts growing again, including cautious consumers, questions over the public finances and a still-fragile banking system”.