Business World

Tuesday 12 December 2017

BoE holds rates steady as UK economy shows resilience

Thomas Molloy

Thomas Molloy

BRITAIN

THE Bank of England (BoE) kept interest rates unchanged yesterday and voted against more quantitative easing (QE) as some economic reports suggest the economy of Ireland's largest trading partner was showing unexpected resilience heading into 2012.

The central bank kept its benchmark interest rate at a record-low 0.5pc, or half the European Central Bank's rate.

It also maintained its bond-purchase target at €275bn, meaning that there will be no increase in quantitative easing.

The central bank has been buying about €5.1bn of gilts a week since October as part of the policy. The central bank's monetary committee is struggling to decide whether the UK economy is headed towards a deep recession.

Unemployment is rising and retailers such as Tesco have issued profit warnings, but other retailers are doing well and the services and manufacturing gauges unexpectedly rose last month, signaling the economy gained some strength.

"Some of the data looks better, but we're probably already in recession," said Alan Clarke, an economist at Scotia Capital Europe in London. "They will expand QE in February, the only question is by how much. I would expect €50bn."

Bank of England policy makers will publish new growth and inflation projections next month. They have forecast that inflation, at 4.8pc in November, will slow "sharply" this year. James Knightley, an economist at ING Group in London, said the inflation forecast meant "further stimulus will be required".

The National Institute of Economic and Social Research said yesterday that the UK economy only expanded by 0.1pc in the fourth quarter and just 1pc in the entire year.

The Treasury, which buys economic advice from the institute, gave a cautious welcome to the predictions of growth.

"But we have to remember this is one estimate from one forecaster, and we should be realistic about the risks," it added.

"The uncertainty in the euro area continues to have a chilling effect on the UK, as well as elsewhere." (Additional reporting Bloomberg and Reuters)

Irish Independent

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