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MPC votes to hold base rate and QE
The Bank of England’s Monetary Policy Committee has once again voted to keep base rate at 0.5 per cent and its programme of quantitative easing at £375bn.
The decision was widely expected as BoE governor Mark Carney has said base rate will not rise until unemployment falls below 7 per cent or there is an unexpected spike in inflation. But even then a rate rise is not guaranteed.
Using the 7 per cent threshold, it was thought rates would not rise until at least 2016.
However, recent falls in unemployment have suggested that the threshold could be breached before that date, prompting economists to predict a lowering of the threshold to 6.5 per cent, possibly in next month’s inflation report. This would allow the BoE to hold interest rates at 0.5 per cent this year.
According to the Office for National Statistics, the UK unemployment rate fell by a record 0.3 per cent to 7.4 per cent for the three months to October, representing the largest fall since jobless measurements began in 1971.
Unemployment reached its peak in early 2012 when the rate hit 8.4 per cent.
Capital Economics UK economist Samuel Tombs says: “While today’s MPC meeting passed without event, the committee may soon adjust its forward guidance.
“Since there are no signs that falling unemployment is stoking inflation, the MPC could do more to support the recovery by lowering the jobless rate threshold.”
Base rate has remained at its current level since March 2009, when the MPC first voted to cut rates to record-lows in a bid to help stimulate the economy. On the same day the MPC launched its programme of quantitative easing, which was last increased in July 2012 by £50bn to £375bn.
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