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Interest rates static but Government cash injection gets a booster

06 August 2009 / by Rebecca Sargent

Interest rates have remained at 0.5 per cent for the fifth consecutive month following the latest announcement from the Bank of England's Monetary Policy Committee (MPC).

The Committee also voted to increase the size of its quantitative easing programme above the agreed limit of £150billion to £175billion, prompting the Governor of the Bank of England to write to the Chancellor to request permission.

According to the Committee's announcement, the further measures are required to ensure that inflation meets its two per cent target – it fell to 1.8 per cent in June.

The Chancellor has since granted the extension of the programme which has been boosting the UK's economy by issuing central bank reserves.

Commenting on the announcement, Ray Boulger of UK mortgage broker John Charcol said: "An unchanged Bank Rate was a foregone conclusion this month and the main interest in the MPC meeting was always going to be what it would do about QE and over what time scale.

"Increasing the QE programme beyond the level previously agreed by The Treasury is a very clear indication that the MPC still has major concerns over the state of our economy and this will no doubt be reflected in next week's Quarterly Inflation Report."

According to Mr Boulger, there is little evidence to suggest that quantitative easing has increased mortgage lending, although he adds: "Of course, it is entirely possible that without QE mortgage lending would have been even more dire."

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