BoE leaves interest rates at record low on deflation fears

London

THE Bank of England on Thursday voted to keep interest rates at a record-low 0.50 per cent, where they have stood for nearly six years, amid fears of deflation and slowing growth.

Policymakers also decided to maintain the level of quantitative easing cash stimulus at £375 billion (S$771 billion), the BoE said in a statement at the conclusion of a two-day meeting.

"The Bank of England's Monetary Policy Committee (MPC) at its meeting today voted to maintain bank rate at 0.5 per cent," the statement read.

"The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion." The decisions were in line with expectations, while economists said the MPC would have been mindful of weak inflation and the eurozone crisis centred on Greece.

Official data showed earlier this month that British inflation dived in December to an all-time low 0.50 per cent on the back of collapsing oil prices, fanning fears of deflation.

The tumbling rate, which compared with 1.0 per cent in November, also sparked forecasts that borrowing costs would remain on hold for the rest of the year.

Minutes showed last month that the MPC panel had voted unanimously in January for the first time since July to hold interest rates at 0.50 per cent.

Economist Samuel Tombs at research consultancy Capital Economics said: "An interest rate rise in the immediate future still looks very unlikely, but could well come back on the agenda later this year once the risk of a prolonged period of falling prices has diminished." That would leave interest rates on hold until after Britain's general election in May.

The BoE's main task is to use monetary policy as a tool to keep 12-month consumer price inflation close to a government-set target of 2.0 per cent.

Economists must now wait until Feb 18 for publication of minutes from this month's MPC gathering. AFP