Bank Base Rate on hold at 0.5%

The Monetary Policy Committee of the Bank of England has voted to maintain Base Rate at 0.5% for the 8th consecutive month.

The decision to maintain the rate at its current level was widely anticipated. Most economists now predict that the rate will remain unchanged well into 2010.

Despite speculation that the The Bank has also announced that it is to inject another £25bn on top of its existing £175bn programme of asset purchases – so-called ‘Quantitative Easing’ (QE). 

Paul Hunt, managing director of mortgage lending software company Phoebus said:

“The Bank of England had to expand the quantitative easing programme because two transmission mechanisms through which it thought it could improve the supply of affordable credit haven’t worked.

"The first mechanism was cutting interest rates. That stopped working long ago. The second was the original QE programme.

"The fact that the Bank has begun another massive expansion of the programme suggests that hasn’t worked either - or at least not on the scale that the Bank was hoping for.

"The first £175bn of QE money has ended up on banks’ balance sheets rather than being leant to businesses or consumers. It has certainly arrested the fall in house prices - which has done wonders for mortgage lenders’ impairment profiles. But it hasn’t got money flowing through Britain's recession-hit economy.

"Businesses up and down the country continue to complain about the difficulty of obtaining credit on reasonable terms. And, obviously, the mortgage market has failed to return to normality.

"Even on the Bank's own preferred yardstick, money supply growth, progress has been slow. For the sake of all taxpayers, we must now hope that the next £25bn of QE cash succeeds where the first £175bn failed. If the banks won't get more money flowing through the economy, the Bank must step in.” .