BoE To Hold Key Rate; Continue Quantitative Easing Measures

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The Bank of England is widely expected to leave the interest rate untouched at a record low of 0.5% and to continue its GBP 175 billion asset purchase programme as the economy is yet to fully recover from deep recession. The central bank is set to announce its interest rate decision at 7.00am ET.

At the end of two-day rate setting meeting held on August 5 and 6, the MPC had agreed to raise the size of the asset purchase programme using the central bank reserves to GBP 175 billion from GBP 125 billion.

In the August meeting, all nine policymakers of the BoE wanted to increase the size of the asset purchase programme, but they were split over the amount to be increased, minutes showed. Six members of the MPC voted to raise the size of asset purchases by GBP 50 billion to GBP 175 billion, while the other three members including Governor Mervyn King sought a GBP 75 billion increase to GBP 200 billion.

Former BoE rate-setter David Blanchflower launched a scathing attack on the bank's governor Mervyn King and criticized the monetary policy committee for not spotting the recession. Blanchflower, who stepped down on May 31 from the BoE rate-setting body, wrote in an article published in Thursday's New Statesman magazine that King "the old iron fist of the BoE", dominated the MPC with his hawkish view on rates.

According to Blanchflower, the MPC will approve further quantitative easing by November at the very latest. He added that King may even manage to get rates down below 0.5%.

In an interview to BBC, former Federal Reserve chief Alan Greenspan said UK would be harder hit than the U.S. by the current recession and collapse in world trade.

The Paris-based Organization for Economic Co-operation and Development in its latest Interim Economic Assessment revised the 2009 GDP contraction estimate to 4.7% from 4.3%. The agency predicted a gloomier situation in the UK.

The Office for National Statistics had upwardly revised the British economic contraction for the second quarter to 0.7% from 0.8%. Meanwhile, the annual rate of decline in GDP was revised to 5.5% from 5.6% in the second quarter.

While publishing its September 2009 Economic Forecast, the British Chambers of Commerce said another increase in the size of the programme, to at least GBP 200 billion, will probably be needed to ensure that the economy does not falter.

Recent statistical reports points towards improvement in economy. On robust auto production in July, British manufacturing output recorded the strongest growth since January 2008. Manufacturing output grew for the second month in a row with a 0.9% rise in July.

A report by the manufacturers' organization EEF and BDO Stoy Hayward on September 8 said a recovery in the UK manufacturing sector is likely to take some time to gain footing, due to continued uncertainty regarding the strength of the markets, and tighter credit conditions weighing on recovery prospects into the next year.

The Bank of England is widely expected to leave the interest rate untouched at a record low of 0.5% and to continue its GBP 175 billion asset purchase programme as the economy is yet to fully recover from deep recession. (Market News Provided by RTTNews)