No rate cut, no more QE

The Bank of England has kept interest rates on hold at 0.5% for a 39th consecutive month.

They have also decided to keep their programme of quantitative easing at the current level of £325bn.

Ahead of this latest meeting of the Monetary Policy Committee, there was some speculation that the Bank would either cut rates or extend QE.

The decision to make no changes is believed to have hinged on the latest Markit/CIPS purchasing managers’ index, which showed further growth in May. A contraction in this index could have prompted a rate cut and further asset purchases to help stimulate the economy.

Retail sales also appear to have improved. The British Retail Consortium saw UK retail sales grow by 3% compared to May last year, although there are some signs that the start of June was not so positive.

We still expect to see further stimulus from the Bank within a few months. Of course this will depend on the direction of various economic indicators this summer.

With the eurozone remaining in a perilous state, the UK economy needs further assistance before it will return to healthy levels of growth.

It will be interesting to see the minutes from this latest MPC meeting, to see how closely fought the decisions made today really were.

If the vote to keep interest rates at 0.5% and QE at £325bn was finely balanced, and if economic indicators fail to improve, a further rate cut and a QE boost seem very likely.

Photo credit: James.Stringer