The Bank of England’s Monetary Policy Committee has chosen to maintain its current level of quantitative easing, and keep interest rates at 0.5%.
The Committee voted to continue QE at the current £375bn level, financed by the issuance of central bank reserves.
Nida Ali, economic advisor to the Ernst & Young ITEM Club, commented: “It’s clear from recent minutes that the MPC are in ‘wait-and-see mode’. £50bn of asset purchases were authorised in their July meeting, which are due to be completed in November, while the Bank has also implemented a number of other policy initiatives such as the Funding for Lending scheme and activating the Extended Collateral Term Repo Facility. We weren’t expecting any change in monetary policy this month.
“The Bank has given little indication that it intends to loosen policy further in the coming months but the downside risks, particularly from the Eurozone crisis, remain significant. Were the crisis to worsen the Bank would be forced to provide far greater monetary support - both in the form of more QE and perhaps other ‘unconventional’ measures.”
Anna Leach, CBI Head of Economic Analysis, said: “This is likely to have been another relatively straightforward decision for the MPC, as the current round of QE has not yet been completed.
“Looking ahead to November’s meeting, we think that the Committee is likely to favour further asset purchases. While there have been a few positive signs in recent data, underlying conditions remain relatively flat.
“Meanwhile, uncertainty around the international backdrop is likely to build further through the autumn, keeping confidence in check.”
Dr Ros Altmann, Director-General of Saga added: “I am very pleased the Bank has decided not to create any more new money. Quantitative Easing (QE) is a drastic policy experiment that may be valid for an economic emergency to avoid depression but we are clearly not in a depression.
Indeed, we may be emerging from recession and, with inflation still above target, the Bank is right to hold off from any more measures. Especially since its past buying of gilts has had such damaging negative side effects on pensions and companies with pension deficits.
Brian Murphy, head of lending at leading broker Mortgage Advice Bureau, said: “With reports filtering through that the UK economy has finally clawed its way out of the double dip recession, the MPC were most likely to sit on their hands again this month and see what happens.
“There was vague speculation interest rates could have come down to 0.25% given the weak economic data, but this has been outweighed by the view that such a move wouldn’t have resulted in a net benefit overall.
“They will also have been aware that the Bank of England’s Funding for Lending Scheme has been seized upon by lenders and has resulted in a further fall in mortgage rates in the last month.
“We saw a pickup in application activity in September as average rates on two, three, and five year fixed rates have all continued to move down, and the percentage of borrowers choosing fixed rate deals on purchase business now stands at 86%, which is the highest for over three years.”