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Bank of England keeps key rate at 0.5%

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The Bank of England (BOE) left its key interest rate at 0.5 per cent in an announcement Thursday following a regular meeting, as British inflation holds at a 14-month low.

[LONDON] The Bank of England (BOE) left its key interest rate at 0.5 per cent in an announcement Thursday following a regular meeting, as British inflation holds at a 14-month low.

BOE policymakers voted 6-3 to keep the rate on hold, down from the 7-2 result last time round, indicating that the central bank could hike borrowing costs at its next meeting in August, matching some analysts' expectations.

Also at its June meeting meanwhile, the bank voted unanimously to maintain its quantitative easing stimulus policy, under which it has pumped £445 billion ($586 billion, 506 billion euros) around the UK economy.

"A vote of 6-3 to leave interest rates unchanged at 0.5 per cent and quantitative easing unchanged... suggests that the Bank of England is closer to the European Central Bank rather than the more aggressive US Federal Reserve in its outlook, with any tightening of monetary policy likely to come slowly and in modest steps," said AJ Bell investment director Russ Mould.

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The pound nevertheless rallied against the US dollar on increased expectations that a rate hike could now occur before the end of the summer.

"The pound has been given a significant boost by the Bank of England after policymakers voted 6-3 in favour of leaving interest rates unchanged, with Andy Haldane joining Ian McCafferty and Michael Saunders in voting for a (quarter-point) hike," noted Craig Erlam, analyst at Oanda trading group.

"Policymakers stuck to their view that first quarter (growth) weakness will prove temporary, which given that this was primarily behind their decision not to raise rates last month, suggests August is very much a live meeting."

In minutes of the two-day meeting that ended Wednesday, the BOE said that UK inflation "is expected to pick up by slightly more than projected... reflecting higher dollar oil prices and a weaker sterling exchange rate".

At the same time, Britain's economy has grown at the slowest pace in more than five years, with gross domestic product of only 0.1 per cent in the first three months of this year.

After Britain voted in June 2016 in favour of exiting the European Union, the BOE quickly cut its main interest rate by a quarter point to 0.25 per cent.

It has since lifted borrowing costs back up to 0.5 per cent to help bring down inflation.

AFP