Bank of England holds off on further stimulus

The Bank of England has voted not to increase its assets purchase programme, after mixed data reports and above target inflation.

The Monetary Policy Committee, led by Bank of England governor Mervyn King, voted to keep the quantitative easing (QE) programme constant at £375bn. The controversial strategy can drive up inflation rates as it involves printing more money to purchase government bonds, which risks devaluing the currency.

Inflation is projected to remain above the 2 per cent target this year.

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Yesterday, economists widely predicted the committee would refrain from further purchases, after mixed economic data did not conclusively show that more stimulus was needed.

The committee also decided to keep the base interest rate at 0.5 per cent, the same historically low level since March 2009.

In recent months, the Bank’s focus has shifted towards the Funding for Lending Scheme (FLS), which incentivises banks to lend to businesses and households. However, Vicky Redwood at Capital Economics believes more QE is not far away.

“If we are right in expecting the economic stagnation to persist throughout this year, and tensions in the eurozone to re-emerge before long, then growth concerns are once again likely to trump near-term inflation worries,” she said.

The minutes of the meeting will be published on January 23.

Elsewhere, the European Central Bank announced it would also leave its interest rates unchanged at 0.75 per cent, with president Mario Draghi due to speak at a press conference this afternoon.