Bank of England Leaves Interest Rates Steady at 0.50%

The highlight of the week is here as the Bank of England decided to leave interest rates steady at 0.50 percent inline with market expectations while the Governor of the central bank Mervyn King also decided to continue printing money to buy gilts as this is the last month to use the rest of the 75 billion already pledged to use while the bank announced to buy an additional 50 billion pounds.

The central bank figured it was useless to keep lowering interest rates while they turned their attentions towards the injecting of money as this will help stimulate economic growth faster despite it leading to inflation on the long-run.

Officials are continuing to exhaust all measures to shore up economic growth as the nation contracted 1.9 in the first three months of this year which was the worst quarter since 1979. This was led from the worst financial crisis since the Great Depression alongside unemployment rates at 6.7% and falling home values also led to this.

Let us not forget that major sectors tumbled which weighed on the UK, yet we are seeing that these major sectors which include services, manufacturing and construction have been showing some recovery as a result of the quantitative easing that the central bank applied as it helped increase production. The service sector yesterday rose to its highest level in eight months and since is the dominate sector in the economy is supporting the fact that the economic deterioration is slowing down.

The BoE is not sure of exactly when a recovery will take place yet as the timing is "highly uncertain" yet the pace of economic slowdown is easing yet inflation they project to decline below the bank's set target rate which is why they are applying the unorthodox measures to avoid deflation risks in the nation.

Also as the bank continues to print money and pump it into the markets will provide tranquility in the financial system while lowering borrowing costs which therefore would boost spending and investments in the UK and that would end the worst economic crisis since World War II.

From the credit crisis, companies are forced to demobilize employees as a way to deal with the current economic conditions and eroded profits which therefore adds to the mounting of job losses which then leads to lack of confidence that Britons have for the nation, because they feel they might become jobless any day if their industry starts to face lower earnings.

As the BoE has decided to increase money supply right away depreciated the pound since investors felt that there will more pounds in the market, as it is currently traded at 1.5087 versus the dollar while trading at 1.3348 against the euro as of 12:25 GMT.

Once again the same scenario as everyday with falling home values, curtailed consumption and weak labor market all factors that are weighing on the outlook of the British economy while they still face a long and painful recession.

The UK stocks extended their incline on anticipations that the global recession is reaching its bottom alongside U.S. Treasury Secretary Timothy Geithner hinting that financial institutions in the U.S. are going to require less capital than they estimated earlier. As of 12:32 GMT the FTSE-100 Index gained 114.36 points or 2.60% to 4,510.85 points.

Ecpulse

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