Bank of England expected to hold fast on interest rates

The Bank of England’s (BoE) is expected to maintain interest rates at a record low of 0.5%, as the UK’s economy shows the first tentative signs of returning to growth.

With the BoE still working its way work through £50bn of asset purchases announced in July, the Bank’s programme of quantitative easing (QE) is also set to remain at the targeted size of £375bn.

Vicky Redwood, chief economist at Capital Economics, said: “With the £50bn of extra asset purchases announced in July still under way, there is no immediate pressure on the MPC (Monetary Policy Committee) to do more this month.”

However, economists have predicted that the MPC may give the go ahead to further rounds of QE in November.

The forecasts come after the Bank argued that QE had helped to increase household wealth by a staggering £600bn.

“Over the past month the outlook hasn’t shifted drastically, but inflation risks do appear to have nudged up,” said Victoria Clarke, an economist at Investec Securities.

“Even so we continue to see the committee backing more asset purchases in November when the current target of £375bn is reached.”

The Bank has also argued that the rate of inflation will reach the government’s target of 2% by the end of 2012, despite the fact that it increased to 2.6% in July.

Sir Mervyn King said it will take more time to assess whether the Funding for Lending scheme will achieve its aim of releasing the flow of credit into the economy.

Under the scheme, created in a partnership between the Bank of England and the Treasury, finance at rates that are lower than those available commercially will be offered to banks, under the provision that they pass these savings onto customers.

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