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International Trade

UK interest rates unchanged, QE on hold, could policy be tightening?

05.03.10
 
In a scheduled announcement, the Bank of England has kept its interest rate at 0.50% for now the ninth consecutive month.

The central bank was widely expected to keep interest rates on hold with economic conditions still some way from a tightening in policy. The central bank also announced that there would be no extension to its quantitative easing programme, leaving the budget at 200 billion. The Bank did warn however, that the programme will be monitored and "further purchases would be made should the outlook warrant them."

Duncan Higgins, senior analyst at Caxton FX stated, "Today's announcement follows broadly in line with expectations, with few anticipating an extension to QE. The budget is due to run out at the end of this month, so the decision to hold could be seen as a sign that they're thinking of tightening policy. With the UK now out recession, the Bank will soon be switching their focus to preventing a rapid rise in inflation."

The pound has found some support following the decision, bringing the price off its day's lows against the euro, and we expect that the pound may continue to gain steadily. Higgins continues, "Although Greece won the backing of the European Central Bank for its plan to cut its deficit,
the market remains sceptical. There are also concerns that the true extent of the fiscal difficulties in Spain and Portugal are yet to be made apparent."

Against the US dollar sterling remains near its three month low, trading some way below $1.60. The pound could have more ground to lose, particularly if there is more positive news from the US labour market tomorrow.

 
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