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Bank of England keeps its power dry

THE Bank of England has kept the City guessing about how it might tweak its forward guidance on monetary policy, after holding UK base rates at a record low of 0.5% and maintaining its quantitative easing programme at £375 billion.

Further clues on the future monetary policy approach will come with publication next Wednesday of the Bank's latest quarterly inflation report.

The Bank's Monetary Policy Committee (MPC), after voting yesterday to hold rates and maintain the QE programme, merely noted the decision had been reached in the context of guidance issued with its inflation report last August.

The MPC said last August it did not intend to raise rates from 0.5%, at which they have stood since March 2009, at least until the International Labour Organisation measure of unemployment had fallen to a "threshold" of 7%, subject to caveats relating to inflation and financial stability.

The MPC appeared at pains at its meeting on January 8 and 9 to emphasise that a fall in unemployment to 7% in the near term would not necessarily trigger a rise in rates. This stance was revealed with publication of minutes of this meeting on January 22.

Figures published last month showed the ILO unemployment rate fell to 7.1% in the September to November period.

Jonathan Loynes, chief European economist at consultancy Capital Economics, said the MPC could broaden its forward guidance focus to a wider range of indicators, while at the same time reiterating the existing message that interest rates were not likely to rise in the near future.

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