Thursday, January 9, 2014

BOE maintains rate, QE target, adds no further comments

    The Bank of England (BOE) maintained its bank rate at 0.5 percent and the size of its asset purchases at 375 billion pounds, as widely expected.
    The BOE, the U.K.'s central bank, made no further comments in its brief statement following a meeting of its Monetary Policy Committee, dashing some expectations that it would change its threshold for changing interest rates in light of the recent improvement in the UK economy.
    The BOE adopted the forward guidance in August that it would not raise interest rates - steady at 0.5 percent since March 2009 - until the unemployment rate fell to 7.0 percent and this was first forecast to be achieved by 2016.
    Since then, however, the UK economy has strengthened considerably and in its inflation report from November the BOE forecast that the unemployment threshold could be reached by the end of 2014 or 2015.
    In October the UK unemployment rate fell to 7.4 percent from 7.6 percent in September and economist are now expecting the 7.0 percent threshold to be reached in coming months, sparking speculation that the BOE would lower the threshold to 6.5 percent to ensure that a rate rise does not torpedo the economic recovery.

      BOE officials have sought to counter speculation in financial markets about an early rate rise, underscoring that interest rates will first be raised when the UK economy is strong enough.
    "Yes: interest rates will rise at some point. But only against a far stronger economic backdrop," the BOE's chief economist Spencer Dale said in December.
    The UK Gross Domestic Product expanded by 0.8 percent in the third quarter from the second quarter for annual growth of 1.9 percent, down from 2.0 percent in the second quarter.
    Economists are looking for quarterly growth of 0.9 percent in the fourth quarter.
    Stronger growth is also boosting British property prices and in November the BOE rolled back its support for the housing sector.
    The UK inflation rate fell to a year-low of 2.1 percent in November from 2.2 percent in October. The BOE targets inflation of 2.0 percent.


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