The Bank of England decided yesterday (January 10th) that it would not extend its quantitative easing (QE) programme, which has so far injected £375bn into the UK economy. It also decided to keep its key interest rate at the historic low of 0.5 per cent, where it has been since March 2009.
The news was greeted with little surprise, as the Bank’s governor, Sir Mervyn King, warned late last year that the economy would continue its zigzag pattern and that any growth would be slow. Sir Mervyn also warned that economic output could contract for the last three months of 2012, which would raise the prospect of a triple-dip recession.
However, surprisingly positive data from the manufacturing industry in December surprised many people and raised hopes that the UK could avoid a triple-dip, although an unexpected contraction in the services industry the same month added to fears of a last quarter contraction.
One reason for not changing the rates is that the Bank is hopeful that its Funding for Lending Scheme (FLS) is starting to work to free up credit to individuals as mortgages and businesses as loans.
The FLS involves the Bank offering up to £60bn in cheap loans to banks and building societies, with the aim that this money should then be lent to individuals and companies to help stimulate the economy.
Official figures for fourth quarter gross domestic product (GDP) are due to be released on 25 January and the minutes of yesterday’s meeting will be published two days before.
Meanwhile, the European Central Bank (ECB) held its main interest rate at 0.75 per cent and said that recent economic indicators had shown signs of stabilising, indicating an improved outlook later this year.
As an economist at Milsted Langdon, Kevin Butler, is able to share his in-depth research and expert views on a wide range of economic and financial topics.