The Bank of England has decided to keep its stimulus programme of quantitative easing (QE) unchanged and also announced today that interest rates will remain at 0.5%.
The decision was widely expected, with most analysts not expecting any change in policy until the new Bank governor, Mark Carney, arrives in July.
The Monetary Policy Committee (MPC) has been split in recent months over whether to increase QE from its current level of £375bn.
Three of the nine MPC members, including Sir Mervyn King, have voted for an extra £25bn of QE at recent meetings.
Recent economic data have painted a mixed picture of the UK economy. Official figures showed retail sales fell in April, while unemployment rose in the three months to March.
However, surveys of the services, construction and manufacturing industries this month have all pointed to a strong recent pick-up in activity.
“The evidence of a budding recovery continued to build over the last month,” said Stephen Gifford, director of economics at the CBI. “So the MPC’s decision to hold off from further monetary stimulus was broadly expected.”
Last month the Bank upgraded its own forecast for growth, and recent data confirmed that the UK has avoided a triple-dip recession, growing by 0.3% in the first quarter of the year.
Inflation has also remained more subdued than expected, with the increase in consumer prices falling to 2.4% in April, albeit still above the Bank’s target of 2%.
“Upside risks to inflation appear to have eased recently due to the overall marked retreat in oil and commodity prices, persistent low wage-growth and moderating household inflation expectations,” said Howard Archer, economist at IHS Global Insight.
“So Mark Carney looks like he will be taking over as governor with the UK in a better looking position than he could have imagined when he accepted the position.”
Interest rates have remained 0.5% since March 2009. It is the lowest level since the Bank began setting rates in 1694.
Sir Mervyn is leaving after 23 years at the Bank, 10 of them as governor. He is the only remaining member of the MPC to have participated in every meeting since the committee was founded in 1997.