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Bank of England pauses as recession-threat eases

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(Globalpost/GlobalPost)

The Bank of England voted to leave its main lending rate at a record-low level of 0.50 percent and refrained from pumping out more new cash on Thursday, with the threat of a return to recession for Britain easing slightly.

"The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent," the BoE said in a brief statement at the conclusion of a regular monthly meeting, whose minutes will be published on April 17.

Thursday's outcome had been widely predicted by markets, which expected the BoE to wait for official data later this month to see whether Britain's economy has re-entered a period of recession, before acting further.

In Frankfurt meanwhile, the European Central Bank decided to leave its main refinancing rate at a historic low of 0.75 percent, despite concerns about the consequences of the Cyprus bailout for the eurozone as a whole.

Britain, though not a member of the eurozone, counts the single currency bloc as its main trading partner.

ING Bank analyst James Knightley said that while recent data suggested that Britain had avoided a return to recession in the first quarter, "UK activity remains weak and there are external risks from the eurozone's situation and US spending" cuts.

Recent official data revealed that British gross domestic product (GDP) shrank 0.3 percent in the fourth quarter of 2012 compared with the previous three months.

Another contraction in the first quarter of 2013 would place Britain in its third recession in under four years. GDP data for this period is due out later in April.

With Britain struggling to sustain economic recovery following the 2008 global financial crisis, the BoE's main lending rate has stood at 0.50 percent for more than four years.

The central bank has meanwhile pumped out £375 billion of new money under its quantitative easing (QE) stimulus programme since March 2009.

"Although the Monetary Policy Committee (MPC) left policy on hold again today, we suspect that the decision was still a close one," said Samuel Tombs at the Capital Economics research group.

BoE governor Mervyn King, who shortly steps down to be replaced by Canadian central bank chief Mark Carney in July, has in recent months unsuccessfully called for an additional £25 billion of stimulus along with two other of the MPC's nine members.

"It is likely that BoE governor King, along with Paul Fisher and David Miles voted to expand QE by a further £25 billion" at Thursday's meeting, Knightley added.

Britain's economy has also been hit hard by ongoing state austerity measures from the coalition government that took power in 2010.

And the country would stick firmly to its barrage of cuts, finance minister George Osborne last month insisted in a budget that also slashed the government's economic growth forecasts.

Chancellor of the Exchequer Osborne meanwhile on Tuesday launched a spirited defence of his controversial welfare reforms, accusing critics of spouting "ill-informed rubbish."

In a keynote speech, the disputed chancellor said it was time to "make work pay" and denounced the current system as fundamentally "broken."

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http://www.globalpost.com/dispatch/news/afp/130404/bank-england-pauses-recession-threat-eases