Bank of England holds interest rates
THE Bank of England’s Monetary Policy Committee has opted to hold rates again.
MPC members erred on the side of caution and opted to hold rates at 0.5% and maintain the asset purchase programme – quantitative easing – at £375bn.
The decision came as after the July purchasing managers index for manufacturing jumped to 54.6 from an upwardly revised 52.9 in June. A reading above 50 indicates growth. This is the strongest reading since March 2011.
Inflation rose 0.2% last month to 2.9%, further from the Bank’s 2% target. New governor Mark Carney avoided having to write to Chancellor George Osborne to explain the hike as he only has to do so if it hits 3%.
Richard Halstead, Midlands Region Director at EEF, the manufacturers’ organisation, said: “Recent data suggesting the recovery may now have some legs will have supported another no change decision this month.
“While the economy has moved in a more positive direction it’s unlikely that there will be major change to the committee’s medium term view on inflation and growth in next week’s Inflation report. The main event from the MPC will now be more detail on its forward guidance plans alongside the Inflation report, which will frame the debate on monetary policy in the months ahead.”
Black Country Chamber President Paul Bennett said: “We believe this to be the right decision, especially as the latest GDP figures weaken the case for more QE in the near future.
“Businesses need a stable economic environment with low interest rates. The MPC should be more explicit in explaining that unless inflation accelerates, official interest rates will be kept at their current low level until early 2015.
“The MPC should also consider more measures to help boost business lending. If the MPC used the existing QE programme to purchase private sector assets such as securitized SME loans, banks would be less risk averse when they lend to these firms.”
