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Bank of England sits tight amid record recession

Last Updated: Friday, December 11, 2009 - 13:40

London: The Bank of England announced on Thursday that it was keeping its key interest rate at the all-time low level of 0.50 percent and maintaining its credit-easing plans amid a record British recession.

The decisions followed a two-day BoE meeting and came one day after Britain`s government admitted that the country`s recession was deeper than it had thought, ahead of a general election next year that it is expected to lose.

"The Bank of England`s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5 percent.

"The Committee also voted to continue with its programme of asset purchases totalling 200 billion pounds financed by the issuance of central bank reserves," the BoE said in a statement.

Markets will have to wait until December 23, when minutes of the central bank`s latest meeting are published, for reasons behind the widely-expected announcements.

In a bid to tackle Britain`s sharp downturn, the BoE`s nine-member monetary policy committee (MPC) decided in March to slash its key lending rate to 0.50 percent.

Also in March, the Bank of England began its extraordinary policy of pumping billions of pounds worth of newly-created money into a British economy struggling against the worst global downturn since the 1930s.

Britain`s central bank had in November decided to pump out another 25 billion pounds of cash in a renewed attempt to boost lending and lift Britain out of its record recession.

That decision took the BoE`s so-called quantitative easing (QE) programme to a total of 200 billion pounds (221 billion euros, 326 billion dollars), with the nation mired in the longest recession since records began in 1955.

The BoE said on Thursday that it expects the programme to take another two months to complete.

Under QE, the British central bank has purchased bonds from commercial institutions to try and boost lending to businesses and individuals which have seen funds dry up as a result of the credit crunch.

Although Britain has yet to follow the eurozone, France, Germany, Japan and the United States out of recession sparked by the global financial crisis, the country is forecast to have exited recession during the fourth quarter.

However Britain`s Finance Minister Alistair Darling admitted on Wednesday that the recession would be sharper than expected.

Chancellor of the Exchequer Darling told parliament that the economy would shrink 4.75 percent this year compared with a previous official estimate of 3.5 percent.

The economy is expected to grow by 1.0-1.5 percent next year, Darling added, matching his earlier forecast.

Bureau Report

First Published: Friday, December 11, 2009 - 13:40

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