Bank of England sits tight on policy as growth outlook brightens

 

The Bank of England left monetary policy unchanged on Thursday, sticking to its commitment to keep interest rates at a record low 0.5% until Britain's recovery is more firmly established.

The central bank made the announcement shortly after finance minister George Osborne announced a sharp upward revision to official growth projections.

Britain has had a surprisingly strong recovery since the start of the year, overtaking its euro zone peers to become one of the fastest-growing advanced economies in the world with annualised growth in excess of 3%.

The reversal in Britain's fortunes has lifted the pound to a five-year high on a trade-weighted index and raised expectations the BoE will be the first of the major central banks to raise interest rates.

However, the economy remains smaller than it was before the financial crisis and the BoE has signalled it is in no rush to remove its stimulus.

Under Mark Carney, the Canadian who took the helm of the bank in July, the Bank has said it will not think about raising interest rates until the unemployment rate falls to 7%.

Carney and other policymakers have stressed that the 7% threshold is not an automatic trigger after the recent growth spurt helped push the unemployment rate down more quickly than the BoE had forecast.

At its two-day meeting which ended on Thursday, the Bank's Monetary Policy Committee opted to leave its bond-buying programme unchanged at 375 billion pounds, as expected by all the economists who took part in a Reuters poll.

The bank began buying bonds in March 2009 to shore up an economy buffeted by recession and high debt levels. It has indicated it will not begin to sell back the bonds until interest rates have returned to a more normal level.