Thursday, February 6, 2014

Bank of England maintains rate, QE size, as expected

    The Bank of England (BOE) maintained its monetary policy stance, as widely expected, holding the Bank Rate at 0.50 percent and the stock of assets purchased at 375 billion pounds.
    The BOE has held its bank rate at 0.5 percent since March 2009 when it also began purchasing assets to hold down long-term interest rates, known as quantitative easing (QE).
    In its brief statement, the BOE also said its latest economic projections would be released on Feb. 12.
    In August the BOE adopted the forward guidance that it would not raise interest rates until the unemployment rate fell to 7.0 percent, a threshold that it first expected to be hit in 2016. In its latest inflation report from November, the BOE pulled this target forward, saying the 7.0 percent unemployment rate could be reached by the end of 2014 or 2015 in light of the improving economy.
    Economists had not expected the BOE to announce any policy changes today but financial markets are speculating over how the U.K. central bank will respond in next week's inflation report to the faster-than-expected improvement in the economy and the decline in the November jobless rate to 7.1 percent.

    The unemployment rate is expected to drop below the BOE's threshold in coming months and some economists expect the bank to lower the threshold to 6.5 percent to avoid raising rates too early.
    BOE Governor Mark Carney has been busy in recent months assuring markets and investors that rates will be maintained for a while as the UK economy is not yet strong enough to withstand higher interest rates.
    The UK's Gross Domestic Product grew by 0.7 percent in the fourth quarter from the third quarter for annual growth of 2.8 percent, sharply up from 1.9 percent in the third quarter. Meanwhile, inflation  eased to the BOE's 2.0 percent target in December from 2.1 percent in November, easing some of the pressure on the BOE to respond to high inflation.



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