BOE keeps stimulus to aid recovery in budget squeeze

The Bank of England kept its bond-stimulus plan in place and left its benchmark interest rate at a record low as officials sustained emergency aid for the economy during the biggest budget squeeze since World War II.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, held the target for bond holdings at 200 billion pounds ($318 billion), matching the median estimate of 34 economists in a Bloomberg News survey. The bank kept the key interest rate at 0.5 per cent.

A split among officials on the direction of policy widened in the past month as Andrew Sentance argued for higher interest rates to curb inflation and David Miles insisted the bank should be ready to buy more bonds. Economic growth reached the fastest pace in four years in the second quarter, though surveys show services, manufacturing and construction have since weakened.

“The decision will have been more closely contested than previously amid ongoing fretting about the pace of recovery,” said David Page, an economist at Investec Securities in London.