Bank of England sits tight over rate, stimulus
London (AFP) - The Bank of England voted on Thursday to hold its key interest rate at a record-low 0.50 percent and maintain the level of stimulus pumping around a slowly-recovering British economy.
The widely-expected announcement from the Monetary Policy Committee headed by Canadian national Mark Carney comes amid low inflation and a surprise drop to unemployment in Britain, a country which nevertheless remains in the midst of government austerity.
"The Bank of England?s Monetary Policy Committee today voted to maintain Bank Rate at 0.5 percent," a statement said at the end of the MPC's first policy meeting of 2014.
"The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion ($617 billion, 454 billion euros)," a statement said.
The nine-member MPC will provide the reasons behind its widely-expected decisions in minutes of the meeting to be published on January 22.
"Although the outcome was expected, the meeting was no doubt interesting," predicted HSBC economist Simon Wells.
"The MPC must interpret the recent unexpected fall in unemployment and decide how to respond. If it concludes it misjudged the amount of slack, rates could rise shortly after seven percent unemployment is reached.
"But while inflation pressure is absent, it may keep rates low for a long time yet."
Rate rise may be long way off
Governor Carney has stated that the Bank of England (BoE) will not raise borrowing costs from 0.50 percent at least until the unemployment rate falls to 7.0 percent, under a "forward guidance" policy.
British unemployment stands at a four-year low level of 7.4 percent as jobs creation in the private sector offsets huge cuts to state spending.
On Monday, finance minister George Osborne warned that Britain needs to find an extra £25 billion of painful cuts after next year's general election.
That follows £17 billion in planned cuts this year and £20 billion in 2015.
The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set level of 2.0 percent to preserve the value of money.
Britain's 12-month inflation rate fell to 2.1 percent in November, the lowest level for four years, as food and energy price rises slowed.
The central bank's continued stimulus, or quantitative easing (QE), programme, has meanwhile not kept inflation at high levels as had been feared by some analysts.
The Bank of England launched QE in March 2009, coinciding with its decision to cut its main lending rate to 0.50 percent, where it has stood ever since.
Under QE, the central bank creates cash that is used to buy assets such as government and corporate bonds with the aim of boosting lending -- and economic activity.
British growth despite consumer belt tightening
Despite government austerity, Britain cemented its economic growth recovery in the second half of last year, in large part thanks to a housing market revival amid cheap home loans.
Loans handed out by retail banks have managed to stay relatively low thanks to them being able to borrow cheaply from central banks. But at the same time, banks are offering low returns on savings, hitting pensioners in particular.
Britain's gross domestic product (GDP) grew by 0.8 percent in the third quarter of 2013 -- the fastest pace for three years -- and the country's unemployment is falling faster than expected, according to the latest official data.
But cutbacks by Prime Minister David Cameron's coalition government continue to bite, forcing many Britons to rein in consumer spending.
Sales at supermarket giant Tesco slid around the all-important Christmas trading period, Britain's biggest retailer revealed on Thursday.
The BoE's latest announcement comes as the European Central Bank on Thursday opted to hold its key rates steady.
Britain is a member of the European Union but not the single currency eurozone bloc, which nevertheless manifests as its main trading partner.
