Bank of England: Bank rate stays at 0.5%

The Bank of England’s Monetary Policy Committee has announced that the official bank rate paid on commercial bank reserves stays at 0.5%. At the same time, the committee said it would continue with its programme of asset purchases totalling £200 billion financed by the issuance of central bank reserves.

In a statement, the committee said it expects the program to be completed within the next two months. The scale of the programme will be kept under review.

Travelex, the world’s largest non-bank foreign exchange and payments specialist, said there was little surprise in the markets as the BoE kept interest rates at 0.5% and maintained the £200 billion asset purchase programme.

Mark Bolsom, head of the UK Trading Desk at Travelex, said, “We would have been very surprised if the Bank of England had made changes to either interest rates or their asset purchasing programme today, as we expect rates to hold at 0.5% until 2011 at least. 

“The Bank of England won’t raise rates with Darling’s growth forecast of 1 to 1.5 percent. Also, after the impact of the pre-budget report yesterday, the markets need some breathing space before the MPC announces any major policy decisions.”

He said that the decision of the BoE to maintain interest rates had no real impact on the local currency, with the markets already anticipating the announcement. Sterling held at 1.1063 against the euro and $1.6307 against the dollar when the BoE made the announcement.

Bolsom added, “The pound was affected by Chancellor Darling’s refusal to tackle the issue of fiscal deficit aggressively enough. Markets sold sterling due to concerns over the size of the UK’s debt and lack of solid detail on how this will be paid back, as well the implications that this could have for the UK’s Triple AAA credit rating.”