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BoE sits tight and keeps rates at 0.5%

by Sarah Miloudi on Aug 01, 2013 at 12:31

BoE sits tight and keeps rates at 0.5%

The Bank of England (BoE) has kept rates on hold at 0.5%, maintaining a four-year trend.

The central bank also decided to keep stimulus on hold at £375 billion, and with little change on the policy landscape, investors will be keeping a close eye on the next Inflation Report, which the Bank will publish on August 7.

Kames Capital's John McNeill, fixed income manager, said the Bank's upcoming quarterly outlook could ring in a 'new regime' for UK monetary policy.  It will be Mark Carney's first as the new BoE governor, and McNeill expects him to deliver on his pledge of using forward-looking statements to manage expectations about the Bank's moves.

These views were also echoed by Howard Archer, chief UK and European economist at IHS Global Insight.

Archer said: 'The Bank of England was always unlikely to act at the August MPC meeting given next Wednesday’s assessment on adopting a policy of forward guidance.

Archer added that particularly in light of the recent good news on the UK economy - including today's healthy Purchasing Managers' Index numbers - the Bank would be unlikely to break with its form of the last four years and alter rates.

He explained: 'The improved news on the UK economy could be seen as highlighting the need for the Bank of England to make it absolutely clear that interest rates are not going to go up for some considerable time to come - so is supportive to the case for adopting forward guidance on monetary policy.

'While the economic recovery seems to be becoming more firmly entrenched, it is from a very low base and with fiscal policy tight, there remains a very strong case for keeping interest rates at 0.5% for a long time to come.'

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