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January 10, 2013 12:00 pm
The Bank of England has kept interest rates on hold and voted against expanding its programme of asset purchases despite disappointing news on the UK economy in recent days.
The BoE’s Monetary Policy Committee voted in favour of keeping its benchmark interest rate at 0.5 per cent – the lowest level in the bank’s 319-year history – and the size of the asset purchase programme, which it uses to conduct quantitative easing, at £375bn.
The decision was widely expected in spite of signs that the economy remains in poor shape.
The purchasing managers’ index for the UK’s dominant services sector showed activity shrank at its fastest pace for more than three and a half years in December, adding to fears that the economy contracted in the final quarter of last year.
The figure for new business orders fell to its lowest level in two years, signalling that activity is likely to stay weak in the coming months and raising the prospect of a triple-dip recession.
The MPC last expanded its asset purchase programme in July 2012.
Since then, top officials at the BoE, including Sir Mervyn King, the governor, have questioned how effective more quantitative easing would be in generating growth. The bank has also rolled out Funding for Lending, a flagship initiative that aims to revive lending. The bank hopes the scheme will boost the economy by encouraging lenders to pass on the lower borrowing costs it entails to UK businesses and households.
Interest rates have been on hold since March 2009.
The minutes of the MPC meeting are published on January 23. The committee next votes on February 7.
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