QE and interest rate held

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The Bank of England has announced the interest rate will remain at 0.5% for the 46th consecutive month

In addition, the quantitative easing (QE) programme has continued to be put on hold since the first week in November, the longest unchanged period since October 2011.

Analysts have previously predicted that output would contract in the fourth quarter of 2012, raising the prospect of a fall back in to recession.

Official figures for fourth quarter gross domestic product (GDP) are due to be released on 25 January.

As expected, the European Central Bank has also kept the cost of borrowing unchanged at 0.75%. Rates have now been at this level for six months after July's cut from 1%.

Rob Harbron, economist at the Centre for Business and Economic Research (Cebr) says growth prospects for the coming year “remain muted” as austerity measures will be “sharper during 2013 than they have done so far.”

“As a result, we expect QE to increase by £25bn in each of the first three quarters of this year in a bid to support struggling growth, reaching a total of £450bn by Q3 2013,” he added.

He expects this year to be to be one of “two halves” as slightly more stable economic conditions are predicted to return later in the year, “a tough business environment is expected to prevail at first and there remains much scope for monetary looseness."

Andrew Sentance, senior economic adviser at PwC, said it now seems “likely that policy will remain on hold until the summer” when Mark Carney takes over as governor.

“But if the UK and the global economy pick up this year as we expect, there should be a renewed debate on how to manage the exit from the emergency monetary policy settings put in place following the financial crisis,” added Sentance.

Raymond Doherty

 

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