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June 5, 2014 12:00 pm
The Bank of England has held interest rates at record lows as it waits for the economic recovery to become more entrenched before tightening monetary policy.
As expected, the central bank’s Monetary Policy Committee held interest rates at 0.5 per cent and maintained the stock of its gilt purchases at £375bn. Minutes of this week’s meeting will be released in two weeks’ time.
Investors expect the BoE to start tightening monetary policy early next year. Although the economy is growing strongly, the MPC thinks there is still plenty of untapped potential or “slack” in the labour market, which would mean there was room for the economy to grow further before pushing up inflation.
The minutes of last month’s meeting show that some members thought the decision on rates was “becoming more balanced” as the economy gathered strength.
Martin Weale – who economists think will be the first of the nine MPC members to vote for a rate increase – told the Financial Times last week he thought “we can wait a bit longer” before raising rates.
“How long that ‘bit longer’ will be I’m not sure, but the best judgment I can have is that it’s not so urgent it needs doing now,” he said in an interview.
Economists think the BoE, which has kept interest rates at a record low of 0.5 per cent since 2009, could be the first leading central bank to increase rates since the European Central Bank tightened monetary policy in the summer of 2011.
Data last week showed the economy grew 0.8 per cent in the first quarter of this year and 3.1 per cent over the past year. That makes it one of the fastest growing economies in the G7, although unlike most other countries in that group, output is still lower than it was before the financial crisis.
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