Thursday, the Bank of England is expected to hold its key interest rate at a record low. As the interest rate reached near zero, the central bank is left with only non-conventional measures to raise liquidity and support economy.
Economists expect the central bank to confirm its quantitative easing measures today and express commitment towards implementing its GBP 75 billion asset purchase programme. BoE governor, Mervyn King's comment, two weeks ago, was construed as suggesting that the central bank may not fully utilize the GBP 75 billion for asset purchase.
The BoE is set to announce its decision at 7.00am ET.
Last month, the BoE had unanimously voted to reduce the Bank Rate by 50 basis points to 0.5%. The interest rate stands at the lowest level since the central bank was established in 1694.
All the nine members of Monetary Policy Committee stood united while deciding the GBP 75 billion Asset Purchase Programme by the creation of central bank reserves. The BoE said it might take up to three months to carry out this programme. The Treasury had authorized an increase in the scale of asset purchases of up to GBP 150 billion, out of which GBP 50 billion should be used to purchase private sector assets.
David Kern, Chief Economist at the British Chambers of Commerce said, Since quantitative easing is now the main monetary tool, it is important that the policy is communicated more clearly, and implemented more forcefully, than has been the case so far.
The business lobby said the central bank need to explain what rate of money supply expansion they are planning to achieve. Without increasing liquidity, companies and individuals would not borrow, even if banks are prepared to lend.
The Organization for Economic Co-operation and Development expects the British economy to contract 3.7% this year after expanding 0.7% in 2008. Further, the jobless rate is estimated to rise to 9.5% next year from 7.7% in 2009.
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