The Bank of England keeps its rate at 0.50% -UPDATE

LONDON (SHARECAST) - The Bank of England (BoE) has decided to maintain its key interest rate unchanged, at 0.50%. 

Its key policy rate has been at this same level since March of 2009. The BoE also took the decision to keep the size of its asset purchase programme unchanged at £275bn. 

Both decisions were fully expected by the market. 

The details of the internal debate that has taken place within the BoE's Monetary Policy Committee will not be known until the meeting minutes are released in two weeks' time. 

In the December meeting, the vote was 9-0 in favor of keeping rates at 0.50%. 

The decision to keep the asset purchase programme at £275bn was also unanimous. 

Commenting on the monetary authority’s announcement, economists at Barclays Capitalare indicating that, “the committee noted that the £75bn extension of asset purchases announced in October would take until early February to complete and that the scale of such purchases would be "kept under review". As this last comment suggests, there remains a strong bias to loosen policy further, and we expect the committee to announce an additional expansion of asset purchases next month. 

Nonetheless, the size of any new extension in its asset repurchase programme is slightly harder to predict, Barclays adds. On the one hand, if the Bank wishes to close the gap between the MPC's central projection for inflation and the 2% target then a further increase of €75bn could be expected. That, however, could entail a moderate acceleration in its rate of purchases. Hence, the possibility does exist that it could instead opt for a smaller increment, of £50bn, while giving a “clear steer” that further purchases would be likely following the May Inflation Report meeting. 

Digital Look opinion: 

Considering recent economic indicators in the United Kingdom, gross domestic product (GDP) likely contracted in the fourth quarter. As such, the BoE will continue to maintain an expansive monetary bias throughout the year. Most analysts expect the rate to stay at 0.50% throughout 2012 and many believe that a new round of quantitative easing could be announced shortly. If global economic risks materialise, especially as regards the Eurozone, then the measure would become a near certainty. 

The problem for the BoE continues to be inflation, which remains near 5%, well above the official target of 2%. Britain's central bank expects inflation to return to 2% during the year ahead. At least until very recently inflation was thought by some to be a serious problem in so far as it could possibly unhinge price expectations. The BoE however does not appear to share the same assessment of the 'balance of risks' for its credibility as those observers despite the inflation rate having strayed away from its target for so long. 
Source:http://www.sharecast.com/cgi-bin/sharecast/story.cgi?story_id=17525067