Bank of England leaves key rate at 0.5 percent

Published April 5, 2012 11:54AM (EDT)

LONDON (AP) — The Bank of England kept its key interest rate at an all-time low of 0.5 percent on Thursday and refrained from pumping more money into the British economy.

The decisions — especially on the rates — were widely expected. The bank has kept borrowing costs unchanged since March 2009.

The rate-setting panel also voted Thursday not to increase its 325 billion pounds ($515 billion) monetary stimulus program — known as quantitative easing — where the central bank buys back a bank's financial assets, such as government bonds, thereby freeing up the flow of money in an economy. February's decision to splash out a further 50 billion pounds in quantitative easing will not be completed until May.

The decisions come against a background of mixed economic signals, including figures Thursday showing an unexpected 1 percent drop in manufacturing output in February. Despite the decline, the wider measure of industrial production, rose 0.4 percent, buoyed by weather-related energy increases.

Simon Hayes at Barclays Capital said an expectation that inflation will not fall as fast as the Bank expected could weigh against further stimulus, though the MPC expanded its program just as inflation was peaking last year.

"There remains a significant likelihood of more QE in May, especially if the activity indicators do not improve," Hayes said.

Two of the nine members of the MPC voted for an increase last month.

"While the pickup in the activity surveys and rise in oil prices have reduced the chances of a further extension to the quantitative easing program in May, we still think that the MPC will undertake more purchases in time," said Samuel Tombs, U.K. economist at Capital Economics.

By Salon Staff

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