BoE Holds Monetary Policy Steady


The Bank of England announced no changes to interest rates or its bond-buying programme and made no further statement on its policy on Thursday.

The BoE had been expected to take a breather following a hectic couple of months under new governor Mark Carney which has seen the economy show fresh signs of life.

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The bank said its Monetary Policy Committee kept interest rates at a record low of 0.5 percent. It also made no change to its asset purchase programme under which the BoE has spent 375 billion pounds' ($586 billion) on British government bonds.

In one new piece of information for markets, the bank explained how it will reinvest proceeds from 1.9 billion pounds worth of maturing British government bonds from its stock of gilts bought under the programme.

The BoE's September policy meeting - which unusually took place on Tuesday and Wednesday to allow Carney to attend the Group of 20 summit in Russia which started on Thursday - followed two landmark MPC gatherings.

In July, it took the unexpected step of warning financial markets against making premature bets on an interest rate hike. And in August it agreed its new forward guidance plan to keep rates on hold until Britain's unemployment rate falls to 7 percent, something the bank expects only in late 2016.

Signs of a surprisingly strong recovery in the economy, while a welcome change for policymakers, has added to scepticism in financial markets about the BoE's ability to keep rates at a record low of 0.5 percent for so long.

Strong manufacturing and services surveys this week prompted some economists to predict that growth in the third quarter could speed up to more than 1 percent, much stronger than the BoE's forecast of about 0.6 percent.

Rising market interest rates has raised the prospect of higher borrowing costs for consumers and companies that could hamper the still incipient recovery.

The European Central Bank is facing a similar challenge. It said in July it would keep interest rates unchanged or cut them further, only for signs of growth to pick up soon after, pushing up some borrowing costs in financial markets. ECB President Mario Draghi was due to speak to reporters on Thursday after the bank's monthly meeting.

At the BoE, the recent run of stronger economic data from Britain and in its European export markets may have added to disagreements among policymakers.

In August, one member of the Monetary Policy Committee (MPC) voted against the forward guidance plan out of concern it would undermine the bank's inflation-fighting credibility. Others said there was probably a case for buying more government bonds in the future to give the recovery an extra boost.

A couple of MPC members might now have voted to pump more money into the economy, economists said, speaking before Thursday's MPC announcement. Carney last week said the BoE might give more help to the economy if the recent rise in market interest rates added to risks for the recovery.

But the recent signs of stronger growth have probably reinforced the opposition of the majority to more bond-buying.

Minutes of September's meeting are due to be published on Sept. 18, with the usual lag of nearly two weeks.

The BoE has tended to make statements only when it made big changes to policy but July's warning on rates prompted some speculation that, under Carney, statements might be more regular.