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Bank Of England Holds Base Rate At 0.5%

(c) Sky News 2012

The Bank of England has decided to keep interest rates on hold at 0.5% and maintain its liquidity programme.

The bank’s Monetary Policy Committee also voted to maintain the current asset purchase scheme, known as Quantitative Easing (QE), at £375bn.

Although the bank voted not to touch interest rates in its July meeting, there had been speculation that it might take some action to kick start much need economic growth.

GDP figures for the second quarter of 2012 revealed that the UK economy contracted by 0.7%, much worse than feared and confirmation of a double-dip recession.

Additionally, figures for June showed that new mortgage approvals fell to their lowest levels in 18 months and total lending (which includes credit card borrowing) saw its smallest rise in two years - £0.3bn.

The formal start of a new ‘Funding for Lending’ scheme on Wednesday might have persuaded the Bank of England to hold off for the time being.

It is hoped that an £80m pot of money available to banks on favourable borrowing rates will encourage lending to small and medium sized businesses.

The new scheme supersedes the previous credit-easing project, not only because the money available is considerably greater (£80m versus £20 m) but also because participating banks will no longer be obliged to pass on a 1% reduced interest rate to any businesses borrowing from them.

On Wednesday night the Federal Reserve in the United States decided to take no further action in respect to their economy.

However it did acknowledge that growth in the US economy was slowing and unemployment figures are no longer falling as fast as they were.

The Fed said it would keep a close eye on the economy with a view to react as and when necessary.

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