RTTNews - The Monetary Policy Committee of the Bank of England unanimously decided to hold the key interest rate at a record low of 0.5% and to increase the size of the asset purchase programme in early May, minutes of the meeting showed Wednesday.

The minutes revealed that all the nine members of the MPC stood united while deciding to raise the asset purchase plan by GBP 50 billion to a total of GBP 125 billion. The central bank should seek to complete the GBP 125 billion of purchases within the next three months, the members concurred. The meeting was held on May 6 and 7.

Members considered the case for increasing the size of asset purchase plan by GBP 75 billion, but they seemed to have decided that there was no pressing need for the larger extension at this meeting. The programme would be reviewed every month and based on the MPC's assessment, the amount could then be increased on decreased, the minutes revealed.

The committee noted that purchases of private sector assets under the Asset Purchase Facility would continue to be financed using central bank reserves rather than Treasury Bills and, in so far as such purchases fell short of the GBP 125 billion total, the Bank of England would buy gilts, the minutes said.

The central bank sees CPI inflation falling below the central bank's target of 2% later this year on diminishing contribution from food and energy prices. The projections indicated that more monetary stimulus was probably required to bring inflation back to target in the medium term.

Members agreed that risk of stimulating demand too little is greater than the risks of stimulating it too much. If inflation rises more rapidly than expected and breaches the inflation target on the upside, then monetary policy could be tightened through a combination of hiking interest rate and selling assets back to the market.

The British economy had dived into deeper recession in the first quarter of 2009. Gross domestic product declined 1.9% in the first quarter, which was the largest contraction since the early days of the Margaret Thatcher government in 1979. Earlier, BoE Governor Mervyn said he sees a relatively slow and protracted recovery in the UK economy.

The April inflation data revealed that annual inflation slowed to a level last seen in January 2008. Consumer price annual inflation stood at 2.3% in April, while retail prices declined 1.2%, which was the lowest since official series began in June 1948.

David Kern, Chief Economist at the British Chambers of Commerce urged the MPC to vigorously persevere with its asset purchase programme and to consider accelerating and even increasing the scale of quantitative easing.

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