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Base rate frozen again, QE up

Base rate frozen again, QE up

Category: Economy

Updated: 06/08/2009
First Published: 06/08/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Monetary Policy Committee (MPC) has announced that the Bank of England's base rate of interest has been frozen at 0.5 per cent for the fifth month in succession.

The move was widely predicted and means that the Bank rate has been at an all time low since it was cut from one per cent in March. The speed

at which it has fallen has been rapid, with the measure set at five per cent as recently as October.

The bank said that while the recession in the UK appears to have been deeper than previously thought, there are signs that lending to households and businesses has improved, while consumer confidence has also picked up.

In addition, the bank's quantitative easing programme (QE) is to be increased by a further £50 billion to £175 billion. Such a move was called for earlier in the week by the British Chambers of Commerce, but has still comes as something of a surprise.

"An unchanged Bank Rate was a foregone conclusion this month and the main interest in the MPC meeting was always going to be what it would do about QE and over what time scale," said Ray Boulger of John Charcol.

"Increasing the QE programme beyond the level previously agreed by The Treasury is a very clear indication that the MPC still has major concerns over the state of our economy and this will no doubt be reflected in next week's Quarterly Inflation Report."

Robert Sinclair, director of the Association of Mortgage Intermediaries, said: "The Bank, and the lending industry, must do more to ensure that sufficient finance is available to give the housing market a further nudge. We therefore welcome the move to increase the level of the asset purchase scheme to £175 billion."

It is the second occasion that the scale of the QE programme has been increased. When the base rate was first cut to 0.5 per cent in March, the programme was announced at £75 billion, rising by £50 billion to total £125 billion in May.

The Committee said it expects the programme to take another three months to complete, while a further increase was not ruled out, stating the scale of the programme will be kept under review.

The European Central bank has also frozen its interest rate, at one per cent.

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