Bank of England and ECB leave interest rates unchanged

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The Bank of England has voted to leave UK interest rates at their current record low of 0.5% and decided against a further round of government bond-buying, amid signs of recovery in the UK economy.

The European Central Bank also voted to leave borrowing costs in the euro area unchanged on Thursday, following upbeat data suggesting the eurozone recession is ending.

Both decisions were widely anticipated in the financial markets.

The Bank of England's monetary policy committee decided against making any changes to borrowing costs in Britain at the second MPC meeting to be chaired by new governor Mark Carney. There was no statement, unlike a month ago when the MPC surprised the City and sent shares rallying by saying rates would stay low for longer than investors had predicted.

Analysts believe Carney will announce new 'forward guidance' for UK monetary policy at next Wednesday's quarterly inflation report. That guidance is likely to pin future rate rises to specific targets for unemployment, predicted Robert Wood, chief UK economist at Berenberg.

"In our view, the most likely result is that the BoE ties interest rates to a relatively cautious unemployment threshold of 7%. The aim will be to try and keep market interest rate expectations low to allow the nascent recovery to blossom into something stronger and more sustainable," Wood said.

Vicky Redwood of Capital Economics agreed, saying "Our best guess is that the MPC will commit to keep official interest rates low until an unemployment threshold is breached."

The Bank's decision came after data showed that UK manufacturing confidence had hit the highest level in 28 months, with exports rising and firms hiring more workers. The eurozone's manufacturing sector also saw a rise in activity, according to data firm Markit.

Powered by article was written by Graeme Wearden, for on Thursday 1st August 2013 13.35 Europe/London © Guardian News and Media Limited 2010


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