Last updated: April 10, 2014 2:40 pm

Bank of England maintains course on rates and QE

A man passes the Bank of England in London in this January 16, 2014 file photo. To match Insight BRITAIN FOREX/MANIPULATION REUTERS/Luke Macgregor/Files (BRITAIN - Tags: BUSINESS)©Reuters

The Bank of England’s Monetary Policy Committee voted to keep monetary policy steady on Thursday, with the base rate at its historical low of 0.5 per cent and gilt purchases at £375bn. The base rate has now been below 1 per cent for more than five years.

With inflation running at a four-year low of 1.7 per cent, comfortably below the BoE’s 2 per cent target, the MPC appears in no hurry to raise rates, despite increasing signs that the UK economic recovery is strengthening.

Simon Wells, chief UK economist at HSBC, said that with three MPC members set to leave by August, “policy should be on autopilot until late summer.”

“At that point, things will get more interesting as unemployment should be below 7 per cent, and the MPC will have more data on slack and any recovery in productivity and wage growth.”

As part of governor Mark Carney’s restructure of the bank, Spencer Dale, Charlie Bean and Paul Fisher are leaving the committee, to be replaced by new deputy governor Minouche Shafik, Andy Haldane and Ben Broadbent.

Under the BoE’s revised forward guidance policy, the bank will not consider any rate rises until unemployment falls below 7 per cent (it is currently at 7.2 per cent). It will then monitor the extent to which spare capacity in the labour market is reduced before raising rates. Most economists are not expecting rates to climb before spring 2015.

But policy makers will be alert to concerns that the rapid acceleration of the housing market, notably in London and the southeast, risks stoking a house price bubble.

Any action to cool the market is likely to come from the BoE’s Financial Policy Committee, which has the power to tighten underwriting standards on mortgages or require banks to hold more capital against specific loan types – such as high loan-to-value mortgages.

Data on Thursday morning from the Council of Mortgage Lenders showed lending for owner-occupier purchases was flat in February, but jumped 33 per cent compared with the same month last year.

Loans for buy-to-let properties were down 9 per cent from January, but up 39 per cent on the previous year.

Paul Smee, director-general of the CML, said: “We would expect a seasonal lending dip around this time of year. However, lending to both first-time buyers and home movers bucks this trend, continuing to show momentum. The substantial year-on-year growth shows how far the market has moved since the flat period experienced up until around a year ago.”

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