Bank of England opts for no change on interest rates
BANK of England policymakers have opted to maintain interest rates at their historic low and have made no move to further increase quantitative easing (QE).
The decision comes despite ongoing concerns about the pressure being placed on the UK economy by the Eurozone crisis and the need to prevent further contraction following the UK’s return to recession.
Opinion had been split over whether the MPC would bow to pressure and expand its QE programme from £325m. The last increase came in February.
Andrew Connors, Area Director for Lloyds Bank Wholesale Banking & Markets in the West Midlands, said: “Wherever you look the prospects for the economy are increasingly gloomy. The banking problems in Spain and the forthcoming elections in Greece have seen a return to market tension and uncertainty across Europe.
“Meanwhile, in the UK the latest PMI data suggests that manufacturing output, which had been performing strongly, will start to contract over the coming months. The latest figures also indicate that the UK economy’s other star performer, the service sector, could also fall back. This is why our economics team is expecting to see a third consecutive contraction in output for this quarter, keeping the UK in recession.”
He said the one piece of good news in an otherwise gloomy outlook was that inflation was continuing to fall. However, he said if the economy continued to contract then pressure to expand QE would continue.
Richard Halstead, EEF Midlands Region Director, said: “The decision to hold steady on policy was largely expected but, with a range of indicators for the UK economy on the slide this is likely to be a wait and see position. The risks to growth seem to be building and, another expansion in asset purchases may be called on to get the economy out of reverse gear.”
Michael Ward, president of Birmingham Chamber of Commerce, welcoming the decision to hold interest rates, said the move would bolster the region’s manufacturing sector – one of the few in the UK not in recession during Q1.
“Manufacturers are leading that growth with fantastic products that the region has to sell to the world. Low interest rates enable manufacturers to be more competitive,” he said.
“Companies are also finding opportunities to capitalise on the poor quality of Chinese goods and can produce smaller quantities, which helps customers avoid storage problems. However while our economic prospects are increasing, we must not get complacent.
“Ongoing problems in Europe will persist for some considerable time and demands for more quantitative easing have started to rise due to the worsening crisis in the Eurozone. But there are plenty of opportunities elsewhere in the world.”
