UK Investment Immigration focus on UK economic trends: The Bank of England's Monetary Policy Committee voted to keep the benchmark interest rate unchanged at 0.5% and to maintain the asset purchase program at £375 billion.
The Bank of England's Monetary Policy Committee did not provide any commentary, and the meeting minutes will be released on October 23.
Howard Archer of IHS Global Insight believes that the threshold for the Bank of England to expand QE is very high. Unless extreme circumstances occur, the Bank of England will not expand QE. He stated:
“The threshold for the Bank of England to expand QE now appears very high.”
“The Bank of England may only expand QE if the UK economy loses growth momentum in the coming months, significant financial turmoil occurs, or if the Federal Reserve's tapering of QE leads to higher UK interest rates.”
“Our view is that the probability of these three events occurring is very low, but we cannot completely rule them out.”
David Tinsley of BNP Paribas believes that the Bank of England's policy decision was within expectations. He stated:
“Overall, the UK's current monetary policy is unlikely to change unless the US debt ceiling issue causes a significant impact.”
“The UK is showing positive signs in various aspects. The UK labor market could potentially reach the target of reducing the unemployment rate to 7% within 6-12 months, while simultaneously controlling inflationary pressures.”
“The Bank of England has clearly indicated that while it is monitoring developments in UK house prices, it will not change monetary policy in response.”
Below is some background information regarding the Bank of England's monetary policy:
The Bank of England's last interest rate cut was in March 2009, when it cut rates by 0.5 percentage points to 0.5% and launched its quantitative easing policy.
The UK economy has shown further signs of recovery this month, which has dampened expectations for the Bank of England to expand its quantitative easing policy.
In August, the new Bank of England Governor, Mark Carney, introduced forward guidance. He stated that the Bank of England would not raise interest rates until the UK unemployment rate falls below 7%. Carney expects it will take about 3 years for the UK to reduce the unemployment rate below the target line.
The Bank of England's forward guidance provides businesses and individuals with a clear direction on interest rates, which may encourage them to increase borrowing and investment.
Given the recent improvement in the health of the UK economy, the market had previously thought the Bank of England might raise interest rates early. On Wednesday, the IMF raised its forecast for UK economic growth this year from 0.9% to 1.4%.
