THE Bank of England yesterday held UK base rates at 0.5% and the scale of its quantitative easing programme at £375 billion, although economists highlighted again the eventual possibility of a cut in rates.
While the Bank's Monetary Policy Committee has signalled it will keep under review any case for cutting base rates further, it has indicated the situation will have to be looked at in light of the impact of the £80bn funding for lending scheme. It is expected to be several months before the impact of this joint Bank of England-UK Government scheme becomes plain.
The UK's renewed recession deepened in the three months to June, with a 0.7% quarter-on-quarter tumble in gross domestic product.
The MPC's quantitative easing programme, hiked by £50bn to £375bn at its July meeting, is aimed at stimulating activity by boosting money supply through the purchase of Government and corporate bonds, funded through the issuance of central bank reserves.
Consultancy Capital Economics said: "We expect both an interest rate cut and a further extension of the asset purchase programme before the end of the year. We expect a rate cut to 0.25%, as is broadly priced into the markets. But a bigger reduction to just 0.1% or so is possible."
Fionnuala Earley, UK consumer economist at Royal Bank of Scotland, said: "The situation is serious, so the committee is unlikely to have ruled out looser policy in future."
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