Bank Rate Held.

No surprise but it’s now official, the Bank of England are keeping interest rates at 0.5% for the 5th month in succession. The Monetary Policy Committee also announced an increase in the quantitative easing program of £50 billion, bringing the total at their disposal to £175 billion. £25 billion of the increase had already been earmarked for the program, but the additional funds came as a surprise, especially as many expected the program to be put on hold, giving the bank time to assess the effect if any, of their actions so far. The £125 billion used to date doesn’t appear to have had the desired effect and stopped lenders focusing on repairing balance sheets rather than lending, despite additional pressure from the Chancellor, although without the injection of funds, things could have been even worse. Despite some signs that the UK may be starting to recover, the bank (and many others) still advocate caution, as they fear any recovery may be too weak to be sustainable. The banks statement observed that “the UK recession appears to have been deeper than previously thought", probably what prompted the increase in funds, which are to be spent over the next three months. With bank rate now likely to remain unchanged until 2010, and fixed rates generally increasing, tracker deals which follow bank rate, look increasingly attractive for some borrowers. The bank has not ruled out further expansion to the program, promising to keep it ’under review’.

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