No change to UK rates or stimulus measures
- 7 June 2012
- From the section Business
The Bank of England has once again left UK interest rates unchanged at 0.5% and announced no expansion to its quantitative easing (QE) programme.
QE is the Bank's scheme which aims to boost the economy by buying bonds. The stimulus currently stands at £325bn.
The Bank's Monetary Policy Committee (MPC) have held rates at its current record low for more than three years.
Earlier, a closely watched survey showed that the UK's services sector grew at a steady pace in May.
Analysts had expected a slowdown, which would have led the MPC to be more likely to consider further stimulus.
The Markit/CIPS purchasing managers' index came in at 53.3 in May, the same as in April. Any reading above 50 implies growth in the sector. A reading of 52.2 had been forecast.
'Wait and see'
The UK economy has been shown to be deeper in recession than was thought when the MPC last met a month ago.
The CBI business group said the Bank's latest decision would have been "a tricky one", given that both official and survey data continued to present "a mixed picture" of the economy.
A recent poll of economists by Reuters showed 25% of those asked thought the MPC would vote for more QE.
"It seems that a 'wait and see' position has been adopted for the moment," said Anna Leach, the CBI's head of economic analysis.
"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."
Recently the International Monetary Fund's managing director, Christine Lagarde, said the Bank of England should consider lowering interest rates further to help the UK weather the eurozone debt crisis.
The IMF also advocated an expansion of its quantitative easing programme. It has so far agreed to pump a total of £325bn into the economy through QE.
Last week, the Bank's chief economist, Spencer Dale, said the economy was still feeling the benefit from the QE already conducted by the Bank.
He also predicted the economy would grow this year and said that inflation - which has been falling sharply in recent months and now stands at 3% - needs to come down further.
However, Trevor Williams, chief economist at Lloyds Bank, said it was a matter of when, not if, more QE would be introduced, adding that the reason the Bank may not have done it this time was because of "lingering worries" about inflation.
"But I think we should look forward and I think that it's clear that there needs to be some easing. Although it might not have been in June it's either going to be in July or August," he told the BBC.
He also pointed to Thursday's decision by the Bank of China to cut interest rates for the first time in nearly four years "because they are worried about the growth outlook".
"The prospects for growth everywhere are deteriorating as a result of a loss of confidence and the hangover effects from the financial crisis," he said.