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Bank Of England Keeps Policy Unchanged

Bank Of England Keeps Policy Unchanged
5/10/2012 8:15 AM ET

The Bank of England refrained from providing further cash boost to the recession-struck U.K. economy as the decision was apparently weighed down by sticky inflation.

The nine-member Monetary Policy Committee on Thursday left the size of the quantitative easing unchanged at GBP 325 billion, marking an end to second round of stimulus. The previous change in the asset purchase programme was in February, when it was raised by GBP 50 billion.

The interest rate was retained at a historic low of 0.50 percent. The rate has been maintained at the current level since March 2009.

At the April meeting, only Adam Posen sought more stimulus, while David Miles gave up his call for more quantitative easing. The minutes of today's meeting is due on May 23.

Hovering stubbornly above the 2 percent target, inflation rose to 3.5 percent in March driven by higher food and clothing prices.

Capital Economics Chief U.K. Economist Vicky Redwood said the Inflation Report will probably show that the current policy stance is sufficient to return inflation to meet its target in two years time. The Inflation Report is due on May 16.

Redwood thinks the economy still needs more support in order to get the recovery back on track and prevent a significant undershoot of the inflation target.

The U.K. economy shrank 0.2 percent in the first quarter, entering a double-dip recession for the first time since 1970s. Economists also see a possibility of another quarter of contraction if macroeconomic numbers deteriorate, especially due to the extra public holiday for the Queen's Diamond Jubilee.

The MPC's inaction suggests that for now at least, the committee maintains the overall view that the economy is achieving underlying growth, said IHS Global Insight's Chief U.K. Economist Howard Archer.

Last month, the International Monetary Fund lifted its 2012 growth forecast for the U.K. to 0.8 percent, which is same as the government estimate.

Data published earlier today showed manufacturing output growing more than expected in March. Factory output rose 0.9 percent from a month ago led by the sharp improvement in production of chemical and transport equipments. But, the increase was insufficient to lift industrial production.

by RTT Staff Writer

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