BoE Holds As Expected Before UK Elections in 5 Months

Chancellor of the Exchequer George Osborne is sticking to his plan to leave the heavy lifting on Britain’s economy to Mark Carney.

Osborne’s pledge to continue tackling the budget deficit means the onus remains on the Bank of England governor and his colleagues to drive economic growth. Tight government purse strings, along with the shackles of a struggling euro area, spurred the Monetary Policy Committee to keep the key interest rate at a record-low 0.5 percent today.

With a general election in five months, Osborne is looking to entice voters with his approach to fiscal responsibility, while the MPC has highlighted the drag from deficit-reduction plans. Also at the forefront of Carney’s concerns is the weakness in the euro area, where European Central Bank policy makers led by Mario Draghi are debating if they need to pump even more stimulus into the economy.

There is a “combination of political risk weighing on growth, fiscal tightening, headwinds from abroad, weak wage growth and very low inflation,” said Elizabeth Martins, an economist at HSBC Holdings Plc in London. That “will be enough to keep rates on hold for another year.”

The BOE’s decision was forecast by all 50 economists in a Bloomberg News survey. The ECB’s Governing Council, which met in Frankfurt today, kept its benchmark rate unchanged at a record-low 0.05 percent.

via Bloomberg

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