Bank of England holds key rate steady

A man sits on a bus as it passes the Bank of England in the financial district of the City of London.

London - The Bank of England kept its support for the economy steady on Thursday, voting to reinvest 6.6 billion pounds of bond holdings that mature in March and saying it would provide more stimulus if needed.

After a two-day meeting, the BoE's nine-member Monetary Policy Committee as expected said its main interest rate would stay at 0.5 percent and that it would keep its gilt purchases at the 375 billion pounds' worth bought so far.

But unusually it also issued a statement that laid out its current thinking and said it would reinvest the proceeds of the maturing gilts.

“The committee agreed that it stood ready to provide additional monetary stimulus if warranted by the outlook for growth and inflation,” the BoE said in a statement.

“The UK economy is set for a slow but sustained recovery in both demand and effective supply... But the risks are weighted to the downside, not least because of the challenges facing the euro area,” it added.

The pound slipped after the comments.

Britain's economy shrank more than expected in the final quarter of 2012, coming closer to its third recession in four years. However, surveys have pointed to a tentative recovery at the start of this year.

In another positive sign, British industrial output rose a touch more than expected in December, data showed on Thursday.

Earlier on Thursday Mark Carney, the next BoE governor, said any rethink of how British monetary policy is run should be made carefully but changes should be looked at over time.

Carney told lawmakers in London that a commitment to keeping stimulus over a period of time could be needed but played down speculation that he would rapidly press for bigger changes at the bank when he takes over in July.

“We continue to expect modest further easing after he takes over in July, which should boost the growth outlook,” said Rob Wood, economist at Berenberg Bank.

None of the 70 economists polled by Reuters last week had expected a change in interest rates or in the BoE's total target for quantitative easing. - Reuters