Bank of England holds steady on printing presses

The Bank of England’s monetary policy committee will not follow the US with an expansion of its economy-boosting measures this month, opting instead to take no further action.

The base interest rate will remain at the record low of 0.5% while there will be no extension to the £200 billion programme of quantitative easing, where the Bank pours freshly printed money into the economy by buying bonds.

It is thought likely that the nine members of the Bank’s rate-setting committee will have ended their two-day meeting in the same way they did last month; divided three ways with the majority wanting policy kept on hold, one member voting for an extension of quantitative easing and another for interest rates to rise.

The Bank’s decision to hold rates steady this month was expected and comes after the US Federal Reserve last night announced it would pump a further $600 billion into the economy, triggering big stockmarket gains on both sides of the Atlantic. While the US economy is growing faster than the UK, growth in the world’s largest economy remains sluggish and it is struggling to bring down its high unemployment rate, which now stands at 9.6%.

The widely-anticipated US move increases pressure on the Bank of England to extend its own stimulus measures. Set up against this though is above-target inflation and an improving economic picture in the UK, with two quarters of better than expected economic growth. The 0.8% GDP figure for the third quarter has been followed by upbeat data, particularly in the dominant services sector where growth unexpectedly gathered pace in October. Manufacturing growth for October also beat forecasts.

Construction sector growth, however, was its weakest for eight months in October. The sector, which slowed considerably during the worst of the downturn, has staged a comeback in the last six months, helping push GDP higher.

Despite the recent buoyant data, the prospects for UK growth remain uncertain, with the impact of the coalition government’s £81 billion package of spending cuts and next year’s VAT rise causing particular concern. Chancellor George Osborne today repeated his endorsement for the Bank to use quantitative easing to boost the economy should growth falter.

Most economists do not expect a rise in the base rate until sometime next year, while a decision to extend quantitative easing may now wait until February when the Bank publishes its quarterly inflation report.

The European Central Bank also opted to keep rates on hold today.

The Bank of Japan will make its own decision on a further package of quantitative easing tomorrow.