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Bank of England Leaves Interest Rate At 0.5%

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The Bank of England (BoE) has just completed it’s scheduled Monetary Policy Committee (MPC) meeting with the announcement that the official interest rate will remain at 0.5% for at least another month. Additionally, the Bank has confirmed that there will be no change to the £375Bn Asset Purchase Facility at this time.

The official Bank of England base rate has been held steady at the 0.5% level for over five years and is showing no signs of being raised in the near future. The strength of the British economic recovery has left markets in now doubt as to the direction of the next rate move by the BoE. The question is now one of timing and it is likely that this topic absorbed much of the discussion during the MPC’s two day meeting. The BoE Governor, Mark Carney, has suggested a very gradual return to a monetary tightening cycle. Meanwhile his deputy, Charlie Bean, has expressed his desire to raise rates sooner rather than later in an effort to control rising house prices.

The minutes of last month’s Bank of England meeting once again showed that all nine members of the committee were unanimous their vote to hold the benchmark rate at it’s current level. In all likelihood we will see this unanimity end over the coming months as individual MPC members gradually come around to the notion of an early rate rise. The Bank’s own GDP growth forecasts for the British economy project 3.4% expansion this year, meanwhile cheap money is continuing to encourage an already over active property market.

The Bank of England has to date been reluctant to use broad interest rate policy to dampen house prices, instead preferring to rely on the fledgling Financial Policy Committee to use it’s macroprudential tool box to address the issue.

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