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LONDON — The Bank of England held interest rates steady at a record low of 0.5 percent for the sixth consecutive month on Thursday and pledged to continue its program to boost the money supply despite gathering signs of an economic recovery.
The bank decided against expanding the program, dubbed quantitative easing, any further this month — but committed to carrying out further asset purchases under the existing program size.
A raft of recent data has suggested that Britain is already climbing out of recession, but economists had widely expected the bank to maintain its cautious stance about the potential recovery.
Bank Governor Mervyn King has warned that while there are signs the recent unprecedented monetary stimulus is taking effect, the depth of the downturn meant that a return to growth would be protracted.
King, who has also said inflation is likely to significantly undershoot the bank's 2 percent target in coming months, was one of three members of the nine-strong monetary policy committee who last month voted to pump even more money into the economy.
The trio were outvoted, with the committee announcing a 50 billion pound increase to the so-called quantitative easing program to 175 billion pounds at the end of their August meeting.
It said Thursday that it expects to take another two months to complete the program and the scale "will be kept under review."
Economists widely expect the bank to hold off tinkering with the size of the program until November when the current asset purchases are completed and policymakers have the benefit of another quarterly inflation report to gauge the state of the economy.
"Further Quantitative Easing remains very possible as serious headwinds still face the economy and sustainable, significant economic recovery is far from guaranteed despite likely growth in the third quarter," said IHS Global Insight economist Howard Archer.
More clues will come when the bank releases the minutes of this month's meeting on Sept. 23.
The National Institute for Economic and Social Research, a leading independent forecaster, estimated this week that Britain recorded growth in the third quarter.
A gain in third-quarter gross domestic product would be the end of the recession — officially defined as the economy shrinking for two or more successive quarters — following a 0.7 percent contraction in the second quarter of the year and a 2.4 percent fall in the first quarter.
The NIESR forecast is supported by a raft of data showing improvements in the job market, the manufacturing and housing sectors and in consumer confidence.
The improving mood was reflected on the London Stock Exchange, where shares hit their highest level of this year on Tuesday.
But the ongoing caution at the Bank of England about a recovery, and expectations of falling inflation, has also left economists forecasting interest rates to stay unchanged well into next year.
"With the economy still weak and inflation projected to remain well below target for a prolonged period of time, interest rates are not heading up anytime soon," said Hetal Mehta, economic advisor to the Ernst & Young Item Club economic consultancy.
