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Base rate held, quantitative easing increased

Base rate held, quantitative easing increased

Category: Money

Updated: 07/05/2009
First Published: 07/05/2009

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 It is now over 6 months old so the content may be out of date.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 Bank of England's Monetary Policy Committee has voted to maintain the base rate of interest at 0.5 per cent.

It also announced that the Bank's asset purchase programme, known as quantitative easing, is to be increased by a further £50 billion to £125 billion.

The Committee said the programme of asset purchasing, which began in March, would take another three months to complete and would remain under review.

Brigid O'Leary, senior economist at the Royal institution of Chartered Surveyors, said the decision to extend quantitative easing suggest the Bank is fairly pessimistic about the economic outlook and, in particular, bank lending.

The decision to freeze the base rate at an all time low was widely predicted. As recently as October, the rate has been five per cent but it has been slashed over the last seven months in an attempt to ward off, and then help the economy out of, recession.

The move has affected the UK public in different ways; savers have seen the return on their funds drastically reduced while homeowners with tracker mortgages have seen their interest repayments all but disappear.

Adrian Coles, director general of the Building Societies Association commented: "While hard pressed savers should see the interest rates maintained, this decision does nothing to help lenders to attract new deposits that could be used to fund mortgage lending."

In a statement, the Bank noted that while UK GDP fell sharply in the first quarter of 2009, surveys at home and abroad show promising signs that the pace of decline has begun to moderate.

It did note, however, that the timing and strength of any recovery is highly uncertain.

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