Bank of England leaves rates on hold in Sept

LONDON: Britain's central bank left interest rates at 0.5 percent on Thursday, leaving open the option of restarting its quantitative easing programme should the economy weaken further.

The Bank of England issued no statement with its decision. But minutes from the meeting due in a couple of weeks are likely to show policymakers discussed options for injecting more stimulus into the economy, against a backdrop of sharply weakening conditions in the United States and euro zone and ongoing financial market turbulence.

All 60 economists polled by Reuters had forecast no change in rates, but a recent run of poor data has underpinned speculation in markets that the BoE may eventually embark on a second round of quantitative easing.

CARL ASTORRI, GLOBAL HEAD OF ECONOMICS AND ASSET STRATEGY AT COUTTS

"With recession concerns rising and fiscal policy only amplifying those risks, monetary policy needs to do the heavy lifting. Although the MPC stood pat this month, we think one or two additional members of the committee will have joined Adam Posen in calling for further quantitative easing and it won't be long before we see further QE announced."

"The earliest this is likely to happen is alongside the November inflation report, but the Bank may decide to wait until February, when inflation will have moved past its peak. The impact of further QE on the economy could be increased if the Bank were to buy illiquid assets such as property loans, rather than simply buying gilts again."

JOOST BEAUMONT, ABN AMRO

"The MPC decided today to keep the Bank rate at 0.5% and the amount of asset purchases at GBP200bn, as expected. As usual, no statement was published, so we have to wait for the minutes, which will be published on 21 September, to get more insight in how the discussion within the MPC has evolved.

"Of particular interest would be to see whether Adam Posen has been joined by other members in his call for another round of asset purchases. At the last meeting, some members already considered the case of starting a second round of asset purchases, although they judged the case was 'not yet' strong enough. Recent data has generally been weak, which is likely to have increased worries about the economic and inflation outlook at the MPC, raising the chance that the central bank will again turn on the printing press.

"However, against the backdrop of elevated inflation, the bar for a second round of asset purchases seems relatively high. It is therefore not our base-case and we expect that the BoE will remain on the sidelines."

IAN MCCAFFERTY, CBI EMPLOYERS' ORGANISATION

"Although recent data has brought further evidence of slower economic activity and business confidence has weakened, it is not clear that this requires an immediate policy reaction."

"We hope the UK economy will be on a firmer footing by next year, when a lower inflation rate will bring some relief for households. However, the global downside risks remain acute, so the Bank must continue to monitor global developments very closely and be prepared to be flexible."

LEE HOPLEY, EEF MANUFACTURERS' ORGANISATION

"Given that divisions within the committee have disappeared this month's 'no change' decision should come as no surprise. Concerns amongst MPC members that the recovery was drifting off track appear to be growing.

"Furthermore, the raft of global indicators heading into more negative territory and mixed signals coming from the UK will have reinforced the view that the risks to growth and inflation are skewed to the downside.

"As a result we're likely to see the Bank rate remain at 0.5 percent into 2012, but the MPC is likely to have a hurdle in pursuing another round of quantitative easing."

Copyright Reuters, 2011