UK rates unchanged; analysts expect more easing

The Bank of England has kept its main interest rate at the record low of 0.5% as well as maintaining the current level of its monetary stimulus.

The decisions were widely anticipated and no explanatory statement was provided by the Bank.

Many analysts think the Bank’s nine-member rate-setting body will decide to increase the level of asset purchases it is making from the current level 275 billion pounds ($422 billion), possibly as soon as next month when it will be armed with its latest quarterly economic projections.

“No surprise with no policy action from the Bank of England this month. But Bank of England action looks odds-on in February with another £50 billion of Quantitative Easing the most likely outcome,” says Howard Archer, chief European and UK economist, IHS Global Insight.

Archer said that the struggling British economy justifies about £50 billion in addition QE funds, which will probably be followed by another £50 billion at some point in the second quarter. These moves would take the total QE tab to £375 billion.

“It is highly possible that the Bank of England could ultimately take the stock of QE even higher than £375 billion,” Archer says.

He points out that the Bank shows little inclination toward lowering interest rates, which are already pegged at 0.50%.

“It is very clear that interest rates will not rise for some considerable time to come – we do not expect any hike until at least the second half of 2013 and it currently looks eminently possible that the Bank of England could keep interest rates down at 0.50% through to 2014,” he said.