Bank pauses on interest rates and quantitative easing

Published on Thursday 10 September 2009 21:42

THE Bank of England paused for breath yesterday a month after its shock decision to pump an extra £50 billion into the recession-hit UK economy.

The monetary policy committee (MPC) held interest rates at their 0.5 per cent record low and gave no further boost to its 175bn quantitative easing programme.

The decision came amid encouraging economic signs, such as recovering manufacturing output and stock markets reaching their highest level in a year.

Bank Governor Mervyn King stunned markets last month after it emerged he called for even more help for the UK economy, although his proposal for an extra 75bn in fiscal stimulus was outvoted by the committee.

The latest decision comes amid criticism of the MPC's reluctance to take early action to ward off recession by former rate-setter David Blanchflower.

He called the governor "old iron fist" and attacked a passive MPC's focus on inflation while the economy spluttered to a halt.

The committee took drastic measures only following the financial crisis – although this month there were no surprises as the MPC waits for the effect of its massive stimulus to be felt.

A raft of recent encouraging indicators for the UK economy are likely to have dampened the committee's appetite for further measures.

This week economic forecasters at a respected think-thank hailed the first quarterly growth since May last year, while good news on jobs and consumer confidence added to the cheer.

Stock markets are also rising, with the FTSE 100 index rising above the psychologically important 5,000 level for the first time in almost a year this week.