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Bank of England pauses QE stimulus

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November 09 2012, 04:07AM

The Bank of England has decided against injecting more new quantitative easing (QE) stimulus into the economy and voted to hold interest rates at a record low, after Britain escaped from recession.

The central bank said in a statement on Thursday that its nine-member monetary policy committee (MPC) voted to hold rates at 0.50 per cent and leave its QE cash stimulus at STG375 billion ($A580 billion).

The announcement means the radical QE policy is effectively on pause after the most recent STG50 billion tranche of new money was pumped out.

Minutes of the latest regular monthly meeting, to be published on November 21, will provide the reasoning behind Thursday's decisions.

"It was probably close but the decision by the MPC to hold fire on announcing further QE this month was expected," said KPMG chief economist Andrew Smith.

The European Central Bank, meanwhile, voted to keep eurozone borrowing costs at a record low 0.75 per cent, as it continued to assess the impact of its latest measures to fight the eurozone debt crisis.

The Bank of England had been forecast to maintain its monetary policy stance after recent data showed the economy bounced back from a double-dip recession in the third quarter of 2012, helped by the London Olympics.

Gross domestic product (GDP) rallied by one per cent in the third quarter, or three months to September, after output had contracted for the previous three quarters, recent data showed.

But growth turned positive on one-off factors, including the London 2012 Olympic Games and rebounding activity after an extra public holiday for Queen Elizabeth II's Diamond Jubilee in the second quarter.

"We suspect that this will prove to be a pause in the QE program, rather than its end," cautioned Citi economist Saunders on Thursday.

"The Q3 surge in GDP largely reflected the rebound from the Queen's Jubilee plus side-effects of the Olympics."

The BoE had cut its key lending rate to the current record low level in March 2009, when it also launched its radical QE policy to pump up the British economy with hundreds of billions of pounds.

The bank raised QE by STG50 billion to STG375 billion in July in a fresh attempt to stimulate lending by retail banks and help prevent economic contagion from the debt crisis in the neighbouring eurozone.

Until recently, analysts had expected the Bank of England to announce an increase to its QE stimulus at the November meeting but changed tack after data showed Britain had escaped its longest double-dip recession since the 1950s.

Despite Britain's emergence from recession, a weak run of economic data has sparked concern over the fragile nature of the recovery.

Under QE, the Bank of England creates cash that is used to purchase assets such as government and corporate bonds with the aim of boosting economic activity.

By Roland Jackson