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UK stimulus on hold – Economists unsurprised

After Chancellor of the Exchequer George Osborne presented his ever so slightly gloomy mid-year budget report investors and industry experts were anxious to see how the Bank of England would react.

Today the British central bank delivered its rate decision.

In light of Osborne committing the UK to at least five more years of austerity yesterday the BoE has decided to keep their bond-buying program on hiatus for a little longer.

This move was predicted by all economists participating in a Bloomberg News survey.

Also forecast by the vast majority of economists was the BoE’s decision to leave its benchmark interest rate at 0.5, a record low.

Until the BoE and Monetary Policy Committee have fully assessed the UK’s fiscal needs they will retain the previous 375 billion Pound quantitative easing target.

However, the central bank did indicate that it was ready to act if more purchases were needed.

An economist with ABN Amro Bank NV assessed the situation in the following terms: ‘You’re going to have tight fiscal policy combined with ultra loose monetary policy and that will remain the case. The risks to the growth outlook are still a little bit to the downside and the fiscal consolidation in the UK next year will be harder than this year, so that will bite.’

There was no significant movement in the Pound immediately after the decision was released, with Sterling remaining higher against its US counterpart.

As of 12:50 pm

The Pound to Euro exchange rate is currently trading at 1.2328

The Pound to US Dollar exchange rate is currently trading at 1.6111

The Pound to Australian Dollar exchange rate is currently trading at 1.5353

The Euro to US Dollar exchange rate is currently trading at 1.3067

The Euro to Pound exchange rate is currently trading at 0.8109