Bank of England keeps rates at record low

GMT 13:57 2014 Thursday ,10 July

Arab Today, arab today Bank of England keeps rates at record low

The Bank of England in central London
London - AFP

The Bank of England opted Thursday to keep interest rates at a record-low 0.50 percent, despite governor Mark Carney's recent warning that they could rise sooner than expected.
The central bank's nine-member monetary policy committee (MPC) also decided after a two-day meeting to maintain the level of cash stimulus, or quantitative easing, at £375 billion.
Both decisions were in line with market expectations and were shrugged off on the London stock market. The BoE will publish minutes from the gathering on July 23.
The bank had slashed borrowing costs to 0.50 percent in March 2009, when it also launched the radical QE policy to stimulate economic growth.
However, Britain's economy emerged from recession in the second half of 2009, after a fierce downturn rooted in the global financial crisis, and has since recovered somewhat.
The economy powered ahead with 0.8 percent growth in the first quarter of 2014 compared with output in the final three months of last year.
However, analysts argue that easing inflation may persuade policymakers to keep record-low rates for the time being.
"Although the economic recovery appears to be heading into the second half of this year with plenty of momentum, the continued weakening of inflationary pressures suggests that today’s decision by the MPC to leave interest rates on hold is likely to be repeated throughout 2014," said Capital Economics analyst Samuel Tombs.
- Sliding consumer prices -
Consumer prices have been sliding in Britain, with 12-month inflation slowing to 1.5 percent in May -- the lowest level for four and a half years.
The central bank is therefore having to deal with inflation that is below its 2.0 percent target, and a housing market that has rallied over the past year, especially in London.
Mindful also that it has to ensure that Britain's growth revival keeps going, the central bank has so far shied away from raising rates to prevent a property bubble from forming.
Instead, it has deployed other tools at its disposal to deal with the rising housing prices.
Carney had last month hinted that the bank could lift rates sooner than expected, prompting analysts to price in a hike by the end of the year.
The bank's main lending rate has been locked in at 0.50 percent for more than five years, but amid signs that Britain's housing market could face a fresh price bubble, the BoE last month announced a cap on lending for home loans.
The bank has recommended that property loans of 4.5 times a borrower's income or higher should comprise no more than 15 percent of new mortgages, with effect from October.
Thursday's decision was the first since Carney warned last month that interest rates could rise sooner than financial markets had previously thought.
The pace of Britain's economic recovery has intensified pressure for a rise.
At the same time, policymakers have also been urged not to take any action that could put growth in jeopardy by saddling firms with higher borrowing costs.
The British Chambers of Commerce (BCC) -- a business lobby group -- said this week that the bank should avoid any "hasty" move to raise rates after signs of slowing expansion in some sections of the economy.

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