By Jason Theodorou
The Bank of England has kept interest rates at a record low of 0.5%, and announced no new quantiative easing measures. The decision was expected by most UK economists and comes after Mervyn King, the Governor of the Bank of England, has repeated comments that the UK recovery is still fragile.
Mr. King said that a reluctance on the part of banks to lend to British businesses, combined with a weakness in export markets which are crucial to the UK, are a threat to the country's emergency from the economic crisis. The Governor has said that the focus should be on 'the appropriate degree of stimulus, not about applying the brakes'.
The Monetary Policy Committee does not seem to be influenced by the UK's 1.1% advance between the months of April and June, with growth widely expected to fall off in the second half of 2010, as government spending cuts come into play and banks continue to withhold lending to businesses.
The MPC has maintained a loose approach to policy, despite encouraging signs of economic growth and no sign of meeting the 2% inflation target, with the consumer prices index standing at 3% since the beginning of 2010.
The Bank of England is expected to raise inflation forecasts in the August Inflation Report, a document which the MPC had access to when it make the decision not to raise rates.
Graeme Leacch, Chief Economist at the IoD, said: "The case for an interest rate rise or reversal in quantitative easing was pretty feeble. I would’ve been discombobulated if the MPC had changed policy. Yes — second quarter GDP growth was good, but that is likely to be as good as it gets in this recovery. Broad money supply growth does not suggest a sharp recovery is underway, and until it does, we think the MPC should hold fire.”
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