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MPC not convinced further rate cut is right thing to do

MONETARY Policy Committee member Ben Broadbent yesterday declared he and his colleagues were "not convinced" it would be right to cut UK base rates from their record low of 0.5% – a move suggested last week by the International Monetary Fund.

Mr Broadbent noted the idea of reducing rates further had been discussed by the nine-strong Bank of England committee last autumn, but that this had been rejected in favour of increasing the scale of the quantitative easing programme.

The QE programme, which was hiked by £75 billion to £275bn last October and by a further £50bn to £325bn in February, is aimed at stimulating economic activity by boosting money supply through the purchase of Government and corporate bonds using central bank reserves.

Touching on the IMF's suggestions after speaking at an event staged by news agency Bloomberg in London, Mr Broadbent said the current shape of UK monetary policy was appropriate.

Highlighting the MPC's decision last autumn to increase QE, rather than cut rates further, Mr Broadbent said: "We are not convinced that it [a further cut in rates] is the right thing to do. We had that discussion around October - when we decided to purchase more assets."

He added: "As to whether [policy stimulus] is sufficient at the moment, then clearly it is."

The UK economy is back in recession, having contracted by 0.3% in both the final quarter of last year and in the opening three months of 2012.

Minutes of the MPC's May 9 and 10 meeting, published last week, signalled that some on the committee stand ready to increase further the scale of QE if required. UK base rates have been at 0.5% since March 2009.

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