Bank of England Keeps Lending Rate Unchanged

The Bank of England announced today that it will keep the overnight lending rate at 0.5 percent. With the turmoil in Europe threatening to impact the modest recovery underway in England, it came as no surprise that the Bank was not yet prepared to lift rates despite a recent quarter point increase imposed by the Bank of Canada.

What is somewhat surprising perhaps, is that the Bank of England will keep its stimulus spending plan intact even as the new Conservative-led coalition pledges to cut government spending. The Monetary Policy Committee, led by Governor Mervyn King, left the target for its bond holdings unchanged at 200 billion pounds ($292 billion).

“A move by the Bank of England is unlikely in the near term,” Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam and a former U.K. Treasury official, said in a telephone interview. “There are risks related to tighter fiscal policy and the euro zone. There is some worry about inflation, but they’re probably judging there are enough headwinds to offset that so they can wait and see.”

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