Bank of England set to hold rates after upbeat data

LONDON: The Bank of England (BoE) is expected this week to hold record-low interest rates and its quantitative easing cash stimulus, after encouraging British economic growth data and despite fresh moves elsewhere to loosen monetary policy, dealers say.

The nine members of the British central bank’s Monetary Policy Committee (MPC) - which includes governor Mervyn King who steps down next month - will cast their votes on Thursday (today) at the conclusion of their regular twoday meeting in central London.

The BoE’s key lending rate had stood at a record low level of 0.5 per cent for more than four years, while it had also injected 375 billion pounds (US$582 billion, 443 billion euros) under its quantitative easing (QE) stimulus programme since March 2009.

King, who would be replaced by Canadian central bank chief Mark Carney in July after he would retire from the role, had called at the previous three meetings for more emergency QE to stimulate economic growth and fend off the threat of recession.

However, recent official data showed that Britain had avoided falling into its third recession since the 2008 global financial crisis.

British gross domestic product (GDP) expanded by 0.3 per cent in the January to March period, rebounding from a 0.3 per cent contraction in the fourth quarter of 2012, in a major boost to Prime Minister David Cameron’s coalition government.

The economy - which had been hit hard in recent times by government austerity measures and the eurozone debt crisis - outperformed market expectations for more modest first-quarter expansion of 0.1 per cent.

The technical definition of a recession is two successive quarters of economic contraction.

“The odds favour the Bank of England continuing to hold off from more stimulus on Thursday,” said IHS Global Insight economist Howard Archer.

“GDP growth of 0.3 per cent quarter on quarter in the first quarter and an improved set of purchasing managers’ surveys for April has eased pressure on the Bank of England for immediate further action to support the economy.”

However, he cautioned that the committee could still decide to implement another tranche of QE cash, in line with recent calls by Mervyn King.

“It is by no means a nailed on certainty that the MPC will sit tight on Thursday, and it is far from inconceivable that they could go for a further 25 billion pounds of QE.”

Since the last BoE gathering, the British government had overhauled and extended its ‘funding for lending’ scheme (FLS) in a bid to boost the flow of credit from banks to struggling small businesses, and thereby aid economic growth.

The BoE and the Treasury last month revealed that the FLS would now make central bank funds available for an extra year, until January 2015. — AFP