The Bank of England has chosen to stick to its current policy by leaving interest rates at 0.5%, easing market expectations for further quantitative easing measures.
The decision comes after the UK posted a series of better-than-expected economic data. The improving picture of the country’s economy has seen the BoE become more optimistic. Since the BoE’s August meeting, the rebound in closely watched business surveys has fed hopes that the economy is crawling out of recession after three quarters of contraction, though the road to a proper recovery still looks uncertain. By holding the interest rate at 0.5% the Bank met the market’s expectations but many traders are predicting that the Bank will start another round of quantitative easing once its current round of easing ends in November.
The crisis in Britain’s main export market has hurt demand and sapped businesses’ confidence to invest, throwing up more hurdles to growth as the government pushes on with a tough austerity plan to erase a huge budget deficit.
The news comes on the same day that the Organisation for Economic Co-operation Development cut sharply its growth forecast for the UK economy. The group says it is due to contract by 0.7%, a sharp revision from its previous prediction of 0.5% growth back in May.
The OECD also cut growth forecasts for other major developed economies, saying that the Eurozone debt crisis poses the greatest risk to global growth. The US is expected to grow by 2.3%, Canada by 1.9% and Japan by 2.2%.
The OECD has also warned that the G7 group of the world’s most industrialised nations that their outlook is not looking good for the rest of the year.
“According to forward-looking indicators, the loss of momentum at the G7 level may persist through the latter half of this year, with the recession in the euro area and associated trade and confidence headwinds enduring,” said the OECD.
The Pound to Euro exchange rate is currently trading at 1.260
The Pound to US Dollar exchange rate is currently trading at 1.590
The Pound to Australian Dollar exchange rate is currently trading at 1.554
The Euro to US Dollar exchange rate is currently trading at 1.261
The Euro to Pound exchange rate is currently trading at 0.793
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