MercoPress. South Atlantic News Agency

Bank of England leaves rates unchanged as UK economy seems to be picking up

Next week the Bank will release the keenly watched Quarterly Inflation Report

Bank of England's Monetary Policy Committee (MPC) has left interest rates at 0.5%. The key borrowing rate has been at that level since March 2009. MPC also said it would make no change to the £375bn of monetary stimulus it is providing through its quantitative easing program (QE).

Unlike last month's interest rate announcement, the first under the new Bank governor, Mark Carney, the MPC made no further comment on policy.

The MPC will make an announcement next week about whether it will adopt a policy of “forward guidance”, a ploy that gives clues about future moves and helps investors to plan ahead.

That will coincide with the release of the Bank's keenly watched Quarterly Inflation Report.

The MPC has an inflation target of 2%, and secondarily to support the government's policy on growth. Although it has been above that rate for months, the UK economy has been deemed too weak for the committee to raise interest rates to curb it, for fear of making borrowing more expensive and slowing the supply of money in the economy.

In fact, its desire to keep the economy moving has lead it to use QE, something that does risk stoking up inflation as it effectively shoots new money into the system. Annual inflation was running at 2.9% in June.

Last week, official figures showed the UK economy was continuing to improve, with GDP growth in the second quarter doubling to 0.6%, and therefore not urgently in need of stimulation.

A further hint that the UK economy is gathering strength was provided by the latest Purchasing Managers' Index figures for July, which showed manufacturing growing at its fastest rate in two years.

However, the economy is still 3.3% below levels reached before the downturn of recent years and the MPC has called the recovery weak by historical standards.

David Kern, the chief economist at the British Chambers of Commerce, welcomed the Bank's announcement: “The MPC made the right decision to hold interest rates and quantitative easing.

”Minutes from the recent MPC meeting suggest that QE is unlikely to be increased any time soon and low interest rates will be maintained for a long period, which will provide a stable environment for businesses.“

The Institute of Directors' chief economist, Graeme Leach, said more light would be shed on the health of the economy next week when the Bank released 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.

“Given the sustained improvement in the broad money supply we've seen this year, the Bank should be raising its growth forecast.”