BoE keeps interest rate at record low

The Bank of England kept its benchmark interest rate at a record low as data pointing to a loss of momentum in the recovery kept policy makers focused on aiding economic growth. The nine-member Monetary Policy Committee, led by Governor Mervyn King, held the key rate at 0.5 per cent, as forecast by all 55 economists in a Bloomberg News survey. The bank also left its bond-purchase programme at £200 billion (Dh1.2 trillion), as predicted by 35 economists in a separate poll. "The economy remains in the doldrums," said Neil Mackinnon, an economist at VTB Capital Inc in London and a former UK Treasury official. "It would be negligent for the MPC to disregard what's going on in the real economy and start raising rates to curb inflation. It would derail any chance of a recovery in the next 12 to 18 months." King's push to keep interest rates unchanged to bolster the recovery won the backing of the International Monetary Fund this week, which said it's appropriate to maintain the "current scale of monetary stimulus." While inflation is more than twice the bank's 2 per cent target, support for tighter policy within the MPC may have been eroded by Andrew Sentance's departure in May, a year after he first called for higher rates. The pound was little changed after the announcement and traded at $1.6404 as of 12.02pm in London. The European Central Bank will also keep its benchmark interest rate unchanged at 1.25 per cent today after raising it in April, according to a separate Bloomberg survey. The decision will be announced at 1.45pm in Frankfurt. The pace of the UK recovery may be curbed by Chancellor of the Exchequer George Osborne's spending cuts to reduce the budget deficit. He said this week he will stick to the fiscal plan, which the IMF said "remains essential to achieve a more sustainable budgetary position". The UK economy stagnated in the six months through March, while consumer spending slumped the most in almost two years in the first quarter. Surveys last week pointed to a further weakening, with manufacturing expanding at the slowest pace in 20 months in May and services growth also cooling. Markit Economics Ltd, which published the data, said they indicate economic growth this quarter may not exceed 0.3 per cent. Home Retail Group Plc said yesterday that sales at its UK store chain Argos declined in the first quarter, as trading conditions were "more difficult and volatile than expected." "While the headline rate of inflation is high, consumer spending is flat, consumer confidence is fragile, and the impact of the fiscal retrenchment is starting to come through," said David Tinsley, an economist at National Australia Bank in London. The bank's rate setters "should sit tight". Investors are betting on a quarter-point rate increase in April, according to forward contracts on the sterling overnight interbank average compiled by Tullett Prebon Plc. From / Gulf News