MPC makes no change to rate

Posted on 5 Aug 2010 by The Manufacturer

The Monetary Policy Committee has left the bank base rate unchanged again for the 17th consecutive month.

The Bank of England has voted to leave the bank rate unchanged at 0.5% at its August meeting yesterday, for a record 17 months in a row.

The Bank’s Monetary Policy Committee (MPC) also kept the stock of asset purchases financed by the issuance of central bank reserves, or gilts, at £200 billion. This is unchanged since November 2009.

Andrew Sentance was the only member of the MPC to vote for a 25 basis point rise in the rate. Mr Sentance has now voted twice for rate rises, and he argued on the BBC Radio 4 Moneybox programme that rates should rise steadily rather than delivering a shock.

Economists expected the status quo decision. “The views within the MPC have become more divergent in recent months, with arguments in favour of both further easing and tightening of policy, reflecting concerns about the strength of the recovery and worries about inflation,” said Lai Wah Co, head of economic analysis at the CBI.

“After the strong gain in economic activity between March and June, growth is expected to be slower in the second half of this year, but the recovery continues to be supported by the current, exceptionally loose monetary policy,” she added. “A move towards a gradual withdrawal of the monetary stimulus may be warranted in the coming months.”

Manufacturing organisation EEF’s July report Economic Prospects 2010 addressed the necessity that the MPC get the next few rate decisions correct, for manufacturers to both have access low cost borrowing while keeping rising inflation in check.

“The MPC is right to leave monetary policy unchanged once again, though beneath the veneer of stability on the surface there is considerable uncertainty,” said EEF’s chief economist Lee Hopley (pictured). “While the appetite for further loosening may have abated, growth prospects in the medium term at home and overseas suggest continued caution before policy begins to tighten.”