The Bank of England kept its key lending rate unchanged at a record low and made no changes to its asset purchase programme following a two-day policy meeting in London.
The Bank issued no statement following its decision, which was widely anticpated by analysts. The key 'Bank Rate' remains at 0.5 percent, the lowest in the Bank's 300 year history, while its asset purchase programme remains unchanged at £375bn, the Bank said in its monthly statement. Minutes of the Bank's last policy meeting in February had indicated that Governor Mervyn King had tried to persuade colleagues to increase the programme by £25bn, causing some analysts to speculate on a more dovish tone this month from the Monetary Policy Committee.
"Perhaps the main surprise was the absence of a policy statement, given that February's decision has been accompanied by one. Our assumption is that there was no new information the MPC felt needed to be conveyed to the market ," said RBS economist Ross Walker, who is forecasting no change from the Bank in either its lending rate or its asset purchase programme for the remainder of the year.
Sterling rose to a session high $1.5074 against the US dollar following the annoucement while Gilts fell, pushing the benchmark 10-year yield 3 basis points higher to 1.98 percent.
Earlier in the session, sterling had tested a a three-year low against the US dollar following a reporting in the Financial Times that Chancellor George Osborne may be preparing to give a broader remit and extra powers to incoming Governor Mark Carney.
Traders cited the FT report as an indication that Osborne would prefer to use looser monetary policy to revive Britain's economy than abandon his efforts to reduce spending and pare down debt over the long term.
Prime Minister David Cameron, in prepared remarks for a speech he will make later Thursday in the North of England, will say that "the very moment when we're just getting some signs that we can turn our economy round and make out country a success ... is the very moment to hold firm to the path we have set. The decisions we make now will set the course of our economic future for years to come. And while some would falter and plunge us back into the abyss we will stick to the course."
Vince Cable, the Conservative-led coalition party's business secretary and Liberal Democrat lawmaker, said earlier this week in an interview with the New Statesmen magazine that extra borrowing to fund certain infrastructure projects would not "undermine the central objective of reducing the structural deficit and may assist in reviving growth."
The FT says Treasury officials are discussing ways in which Osborne can re-draft both the overall remit of the Bank of England and give Carney more leeway on its current 2 percent inflation target - which Mervyn King admitted last month won't be met for at least another three years. The report says Osborne may unveil the changes during his 20 March Budget Statement.
"With all the shenanigans surrounding the impending arrival of Mark Carney as the next Governor, it is easy to lose sight of the underlying principles that should guide monetary policy," wrote Societe Generale economist Brian Hilliard in a note to clients published earlier this week. "We expect further sterling weakness in the short term, which will add to the inflation pressures. This will complicate the task of the MPC in the second half of the year, just as Carney arrives. The widespread expectation is that he will persuade his new colleagues to ease further but that will become increasingly hard to justify as the inflation forecast path is revised ever higher."
Carney, the current governor of the Bank of Canada, kept that country's key lending rate at 1 percent Wednesday and issued a statement that indicated low rates would "likely remain appropriate for a period of time, after which some modest withdrawl will likely be required." Investors interpreted the statement as dovish, taking the Canadian dollar around 0.5 percent lower against its US counterpart in foreign exchange trading after the BoC announcement.
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