Thursday, October 10, 2013

BOE maintains QE target, bank rate, as expected

    The Bank of England (BOE) maintained its target for asset purchases at 375 billion pounds and the bank rate at 0.5 percent, saying in a brief statement that this decision was reached in the context of the forward guidance announced in August.
    In August the BOE pledged to maintain the bank rate and not reduce the target for asset purchases at least until the U.K. unemployment rate declines to 7.0 percent.
    The decision was widely expected as the U.K. unemployment rate only fell to 7.7 percent in July from 7.8 percent in the previous four months amidst growing evidence that the U.K. economy is starting to strengthen.
    The BOE has held the target for asset purchases - also known as quantitative easing - steady since July 2012 with members of its Monetary Policy Committee unanimously voting to maintain that amount since July when the new governor, Mark Carney, took over. The bank rate has been maintained at 0.5 percent since March 2009.
    In July the BOE also countered the rise in UK bond yields following expectations that the U.S. Federal Reserve would start to reduce its asset purchases, saying the implied rise in the future path of its bank rate was not warranted by economic developments.
    The U.K. economy expanded by an annual 1.3 percent in the second quarter, up from 0.2 percent in the first quarter while inflation eased to 2.7 percent in August from 2.8 percent in July, still above the BOE's 2.0 percent target.
    In its latest forecast, the International Monetary Fund (IMF) revised upwards its forecast for the UK economy, projecting Gross Domestic Product growth this year of 1.4 percent, up from its April forecast of 0.7 percent, and 1.9 percent growth in 2014, up from 1.5 percent.


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