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Bank of England Keeps Interest Rate at Record Low
The Bank of England decided to keep its benchmark interest rate unchanged on Thursday amid doubts about the strength of Britain's economic recovery.
The central bank left its interest rate at 0.5 percent, a record low, and also held its program of economic stimulus at £375 billion, or about $560 billion. Some economists had expected the central bank would expand its stimulus program to help keep the economy from falling back into recession, from which it emerged only in the third quarter of last year.
Britain's central bank has been focusing on reviving economic growth by keeping interest rates low and encouraging banks to lend more even though inflation continued to hover above the central bank's 2 percent target. The pound has been tumbling since the beginning of this year and fell to the lowest level in almost three years as some investors anticipate the central bank to inject more money into the ailing economy.
Brian Hilliard, an economist at Société Générale in London, said more stimulus, or so-called quantitative easing, was just a matter of time.
"If you're worried about growth and not inflation, you're going back to quantitative easing," Mr. Hilliard said.
But he also warned that allowing the pound to fall could be a risky strategy because it would ultimately push up the price of goods and services in Britain. Higher consumer prices could damage economic growth, he said.
Mervyn A. King, the governor of the Bank of England, who is due to be replaced by the Canadian Mark Carney in about four months, was one of three monetary policy committee members last month who voted in favor of more economic stimulus. Mr. King has repeatedly said that more needs to be done to provide credit for businesses. The central bank's current lending program suffered a setback when lending in Britain fell at the end of last year.
Mr. Carney, who is expected to step down as governor of the Bank of Canada in June, has been trying to dampen expectations in London that he would radically change the way the bank helps the economy. He previously suggested he would continue to allow inflation to remain above the target while seeking to revive the economy.
Signs of an economic recovery remain weak. Retail sales rose last month but manufacturing surprisingly shrank in February and activity in the construction sector also declined.
Britain lost its triple-A credit rating last month from Moody's Investors Service, which cited continuing weakness in the economy. The rating cut was widely expected but still offered ammunition to those critical of Prime Minister David Cameron's austerity plan. The opposition Labour Party argued the debt downgrade was proof that the austerity measures went too far and were strangling growth.
[Source: By Julia Werdigier, Reuters, London, 07Mar13]
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