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Bank holds rates at 0.5%

The Bank of England has decided to hold rates for the first time in seven months as analysts and businesses looked to the central bank to re-affirm its commitment to quantitative easing.

Rates have been held at the historical low of 0.5% amidst concerns expressed by Bank governor Mervyn King that slashing rates to zero may hit lenders’ profit margins and hamper lending further.

The Bank has also voted to continue with its programme of quantitative easing, which has the seen the central bank spend just over £26bn on asset purchases.

The level of success the Bank has had with quantitative easing – the buy-up of government bonds to boost the money supply – has detracted from the usual clamour around the rate decision.

Alistair Darling, the chancellor, has agreed to the Bank spending £75bn on quantitative easing measures over a three-month period, with another £75bn committed if necessary.

But last month during a session with the Treasury Select Committee King called the Bank’s commitment to the process into question with comments that the full £75bn may not be spent at the risk of fuelling inflation.

Speaking ahead of today’s rate decision David Kern, chief economist at the British Chambers of Commerce, says: “Since quantitative easing is now the main monetary tool it is important that the policy is communicated more clearly, and implemented more forcefully, than has been the case so far.”

He adds: “The Bank needs to spell out what rate of money supply expansion they are planning to achieve.

“Without a major boost to liquidity companies and individuals will not borrow even if banks are prepared to lend.”

Nicholas Leeming, director of propertyfinder.com, says: “The Bank has got the green light to ‘print money’ and is now more concerned with making sure that their plans for quantitative easing work.

“We have reached a new phase in the housing market downturn.

“If the housing market and economy are to get moving again, it essential that the stream of money from quantitative easing actually reaches consumers.”

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