MercoPress. South Atlantic News Agency

Bank of England leaves rates unchanged but pauses pumping liquidity

Bank Governor Mervyn King warned about inflation on the short term

The Bank of England decided Thursday against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy. Under QE, the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.
Last week, it revealed it had spent all of the £200 billion put aside for QE.

The Bank also kept interest rates on hold at a record low 0.5% for the 11th consecutive month.

While halting QE, the Bank said the £200 billion already injected into the economy through the program would “continue to impart a substantial monetary stimulus to the economy for some time to come”. But it did not close the door on further spending.

“[The Bank] will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.”

Analysts had expected rates to remain unchanged.

The decision to keep rates on hold comes despite official figures showing that UK consumer prices rose in December by 2.9%, their fastest annual pace for nine months and above the Bank's 2% target.

The Bank said in a statement that it would “continue to monitor the appropriate scale of the asset purchase programme” and further purchases would be made if needed.

Bank Governor Mervyn King warned last month inflation was “likely to rise to over 3% for a while”, and could go even higher if energy prices and indirect taxes were to increase further, but added that it “should return to target in the medium term”.

Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.
For that reason, most analysts expect rates to stay at 0.5% until at least the second half of 2010 for fear of the UK falling back into recession.