The Bank of England has kept interest rates on hold at 0.5%, with no change either to their asset purchase programme of quantitative easing.
This latest interest rate decision comes as the OECD cut its forecast for the UK economy.
They now believe that the UK economy will shrink by 0.7% in 2012. As recently as May they were forecasting a contraction of 0.5% for the year.
Interest rates have now been at 0.5% for three years. With the UK economy faltering, we do expect to see a further rate cut by the end of this year.
There will certainly be increasing political pressure on the Bank to take steps that will kick start the economy.
Cutting interest rates should have more of a direct impact on the ‘real’ economy than printing more money, which to date appears to have done little more than bolster bank balance sheets.
In addition to problems in the UK economy, the Bank of England will be keeping a close eye on troubles in the eurozone.
Mario Draghi, president of the European Central Bank, has today revealed details of a plan to buy the government bonds of ailing member states.
Describing the euro as “irreversible”, Draghi is aiming to provide a “fully effective backstop” which will cut the cost of borrowing and prevent eurozone nations from being forced out of the single currency.
Photo credit: Flickr/Manic Street Preacher
