BoE keeps rates steady at 0.5 percent as expected

Reuters

LONDON (Reuters) - The Bank of England kept its key interest rate at 0.5 percent on Thursday, in a widely expected move after a run of subdued data which has cast doubt on the strength of Britain's economic recovery.

The decision will be a disappointment to arch-hawk Andrew Sentance after his final meeting after nearly five years on the BoE's Monetary Policy Committee, and there is a strong risk that momentum toward higher rates will dissipate after his departure.

Continue Reading Below

A limited first-quarter bounceback from economic contraction in the last three months of 2010, weakening April purchasing managers' surveys, and a fall in inflation from 4.4 percent to 4.0 percent may already have dampened the MPC's enthusiasm for tighter policy.

While a May rate rise was seen as a strong probability several weeks ago, by last week the overwhelming majority of economists polled by Reuters expected rates to stay on hold.

Last month, six of the nine policymakers voted to hold rates.

Before the rate decision, sterling had fallen to a 13-month low against the euro, due to an apparent divergence between BoE policy and the rate-tightening cycle that the European Central Bank looks to have embarked on.

The MPC based its decision on a new set of quarterly economic forecasts, but these will not be published until next Wednesday. Minutes and a voting breakdown of Thursday's meeting are due on May 18.

Sentance's MPC term expires at the end of May, and he will be replaced by former Goldman Sachs economist Ben Broadbent.

(Reporting by David Milliken, editing by Mike Peacock)