Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion

Unsurprisingly, the Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.

The Committee said that it reached its decisions in the context of the monetary policy forward guidance announced alongside the publication of the August 2013 Inflation Report.

Also in the context of that guidance, the Committee agreed to reinvest the £1.9 billion of cash flows associated with the redemption of the September 2013 gilt held in the Asset Purchase Facility.

Commenting, Nida Ali, economic adviser to the EY ITEM Club, said:

"With the MPC in wait-and-see mode to gauge whether explicit forward guidance will be enough to provide the necessary stimulus, monetary policy this month was always likely to remain unchanged. Committee members have mentioned that they are ready to authorise more QE to stimulate the economy, should the need arise. But with the run of data getting stronger by the day, nothing has happened over the last month to warrant such a decision.

Bank of England -

Bank of England –

"In our view, forward guidance will be beneficial for the UK. The economy is in recovery rather than remission and this guidance gives the Bank the flexibility to reduce the risk of relapse. It will help put a floor under firms' expectations of output growth as well as unemployment and therefore stimulate corporate spending.

"Markets have moved in the opposite direction since forward guidance was introduced, under the pretext that unemployment will reach 7% earlier than the Bank expects. But we think that unemployment will remain above 7% for most of 2015, with a rate rise likely only at the beginning of 2016.

"Either way there is evidence to suggest that Carney is trying to bypass financial markets altogether and choosing to communicate directly with businesses and households about the future path of interest rates. This will give them more certainty about the interest rate outlook so that they can invest and spend more.

"With base rates already at rock bottom, Carney is trying his level best to employ the full range of tools at his disposal. These efforts are a step in the right direction and should have a positive impact on the economy."

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