Bank of England keeps rates at record low

Victoria Cleland, right, and Mark Cornelius carry posters showing the design of the new polymer banknotes as they pose for the media after a news conference at the Bank of England. Photo / AP
Victoria Cleland, right, and Mark Cornelius carry posters showing the design of the new polymer banknotes as they pose for the media after a news conference at the Bank of England. Photo / AP

The Bank of England has voted to hold its key interest rate at a record-low level of 0.50 per cent and maintain the level of stimulus pumping around the recovering economy.

"The Bank of England's Monetary Policy Committee today voted to maintain Bank Rate at 0.5 per cent," a statement said on Thursday.

"The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion (A$696 billion)," it continued.

The BoE will provide the reasons behind its widely-expected decisions in minutes of the meeting to be published on January 22.

The Bank of England, under governor Mark Carney, has stated that it will not raise borrowing costs from 0.50 per cent at least until the unemployment rate falls to seven per cent, under a "forward guidance" policy.

British unemployment stands at a four-year low level of 7.4 per cent as jobs creation in the private sector offset huge cuts in state spending.

On Monday, finance minister George Osborne warned that Britain needs to find an extra £25 billion of painful cuts after next year's general election.

That follows £17 billion in planned cuts this year and £20 billion in 2015.

The BoE's main task is to use monetary policy as a tool to keep annual inflation close to a government-set level of 2.0 per cent to preserve the value of money.

Britain's 12-month inflation rate slowed to 2.1 per cent in November, the lowest level for four years, as food and energy price rises slowed.

The central bank's continued stimulus, or quantitative easing (QE), programme, has not kept inflation at high levels as had been feared by some analysts.

QE was launched in March 2009, coinciding with its decision to cut its main lending rate to 0.50 per cent, where it has stood ever since.

Under QE, the central bank creates cash that is used to buy assets such as government and corporate bonds with the aim of boosting lending - and economic activity.

Despite government austerity, Britain cemented its economic growth recovery in the second half of last year, in large part thanks to a housing market revival amid cheap home loans.

Britain's gross domestic product (GDP) grew by 0.8 per cent in the third quarter of 2013 - the fastest pace for three years - and the country's unemployment is falling faster than expected, according to the latest official data.

But cutbacks by Prime Minister David Cameron's coalition government continue to bite, forcing many Britons to rein in consumer spending.

-AAP

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