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Rates held at 0.5; BOE injects GBP 50 bn to spur on lending

Friday 7th August 2009

The Bank of England’s Monetary Policy Committee (MPC) yesterday voted to keep interest rates at 0.5 per cent alongside a surprise injection of another GBP 50 billion to to GBP 175 billion to further stimulate bank lending.

The world economy remains in recession, said the MPC, though there have been increasing signs that output in the UK’s main export markets is stabilising.

Financial market strains have eased and banks’ funding conditions have improved a little, although financial conditions remain fragile, it said.

In the United Kingdom, the recession appears to have been deeper than previously thought. GDP fell further in the second quarter of 2009. But the pace of contraction has moderated and business surveys suggest that the trough in output is close at hand. Lending to business has fallen and spreads on bank loans remain elevated, it said.

In the light of the Committee’s latest Inflation Report projections and in order to keep inflation on track to meet the 2 per cent inflation target over the medium term, the Committee judged that maintaining Bank Rate at 0.5 per cent was appropriate.

In the light of that outlook, the Committee also agreed that it should extend its programme of purchases of government and corporate debt to a total of £175 billion, financed by the issuance of central bank reserves, it said.

Nick Hopkinson, director of Property Portfolio Rescue (PPR), said: “The Government’s programme of Quantitative Easing clearly hasn’t worked and it goes beyond belief that it is prepared to pledge further billions to an unproven strategy, which is likely to drive inflation.

Dominic Toller, managing director of PropertyEarth.net, said: “Homeowners will breathe a sigh of relief at continued low rates, especially those who have been affected by unemployment and are already struggling with mortgage payments.”

He continued that low rates are improving yields for property investors, with some properties generating returns as high as 10 – 11 per cent.

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Posted By Reg Callacher on Friday 7th August 2009 12:49:55

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If only my company name ended with Bank We could make a major loss and pay ourselves a massive miss management bonus. Then the Government would give us billions O to be a BANK Maybe the BANKS will start lending this time ???????????????

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