The Bank of England on Thursday decided to leave its benchmark interest rate unchanged at a record low as UK's economic recovery continues at a slow pace. Britain's central bank said it would keep its key interest rate at 0.5 per cent, where it has been since March 2009. The bank also left its bond purchasing programme unchanged at £375 billion, or roughly $611 billion.
Britain's economy grew 0.7 per cent in the fourth quarter after growing 0.8 per cent in the third quarter, outpacing much of continental Europe and sending the pound higher against the dollar.
"The British economy looks like it would continue to grow at the same pace it did in the second half of last year," David Tinsley, an economist at BNP Paribas, said before the announcement. "There's no sign of an acceleration, with manufacturing and services sectors remaining soft."
The Bank of England's governor, Mark J Carney, has been under pressure to make some changes to his policy of forward guidance, which is meant to limit uncertainty among investors and consumers about when the central bank would raise rates in the future. Under the current guidance, announced in August, the central bank would only consider raising rates once the unemployment rate falls to 7 per cent.
But unemployment has been falling faster than economists had anticipated, dropping to 7.1 per cent in the three months that ended in November. Some economists said the fall means Carney's forward guidance policy has failed and needs to be changed.
Until last month, Carney rejected the criticism and reiterated that the 7 per cent unemployment rate target was merely a point at which the central bank would start considering a rate increase. Even though unemployment is falling, inflation is at 2 per cent, the central bank's target, and economic data has been mixed. While construction improved with the help of some government programmes, production output remains weak.
At the World Economic Forum in Davos, Switzerland, last month, Carney said Bank of England policy makers would review the forward guidance policy and consider a "range of options". He is expected to make an announcement on February 12, when the bank is due to publish its next inflation report.
Britain's economy grew 0.7 per cent in the fourth quarter after growing 0.8 per cent in the third quarter, outpacing much of continental Europe and sending the pound higher against the dollar.
"The British economy looks like it would continue to grow at the same pace it did in the second half of last year," David Tinsley, an economist at BNP Paribas, said before the announcement. "There's no sign of an acceleration, with manufacturing and services sectors remaining soft."
The Bank of England's governor, Mark J Carney, has been under pressure to make some changes to his policy of forward guidance, which is meant to limit uncertainty among investors and consumers about when the central bank would raise rates in the future. Under the current guidance, announced in August, the central bank would only consider raising rates once the unemployment rate falls to 7 per cent.
But unemployment has been falling faster than economists had anticipated, dropping to 7.1 per cent in the three months that ended in November. Some economists said the fall means Carney's forward guidance policy has failed and needs to be changed.
Until last month, Carney rejected the criticism and reiterated that the 7 per cent unemployment rate target was merely a point at which the central bank would start considering a rate increase. Even though unemployment is falling, inflation is at 2 per cent, the central bank's target, and economic data has been mixed. While construction improved with the help of some government programmes, production output remains weak.
At the World Economic Forum in Davos, Switzerland, last month, Carney said Bank of England policy makers would review the forward guidance policy and consider a "range of options". He is expected to make an announcement on February 12, when the bank is due to publish its next inflation report.
©2014 The New York Times News Service