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Bank of England keeps main interest rate at 0.5%

The Bank of England on Thursday (Aug 7) opted to keep its benchmark interest rate at a record-low level of 0.5 percent, but debate over when to raise it is heating up. 

LONDON: The Bank of England on Thursday (Aug 7) opted to keep its main interest rate at a record-low level of 0.5 percent. The British central bank's nine-member monetary policy committee decided also to maintain the level of cash stimulus in the economy at £375 billion (US$632 billion, S$790 billion, 472 billion euros), it said in a statement.

"The Bank of England's Monetary Policy Committee at its meeting today voted to maintain Bank Rate at 0.5 percent," the statement said. "The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion."

Reasons behind the decisions will appear next week when the Bank of England publishes its latest economic forecasts. Minutes of the latest policy meeting will be released in two weeks' time.

Britain's strengthening economy means the central bank is on course to be the first of the world's major central banks to call time on years of crisis-era monetary policy and lift interest rates from historic lows. Investors expect the bank to begin raising its benchmark rate early next year.

New forecasts for growth and inflation published by the Bank of England on August 13 will offer investors fresh clues to the possible timing of the monetary policy committee's first move. 

"Attention will now turn to the inflation report and the minutes of today's meeting for a further steer on the committee's current thinking," said Elizabeth Martins, economist at HSBC bank. "Although the vote in July was unanimous, the minutes suggest that for some members the decision is becoming much more of a close-run thing. As such, the market remains focused on the breakdown of the votes" for clues are when rates are likely to rise.

In the second quarter, Britain's economy grew strongly to become larger than before the global financial crisis. Gross domestic product (GDP) expanded by 0.8 percent between April and June from the first quarter, when it grew by the same amount, recent official data showed.

The latest figures, along with a sharp fall in unemployment to the lowest level for five years, could give a boost to the government before a general election next year.

The Bank of England's key task is to keep British 12-month inflation close to a government-set target of 2.0 percent. The rate accelerated to 1.9 percent in June. The bank slashed borrowing costs to 0.50 percent in March 2009 to help boost growth after the financial crisis and they have remained there ever since.

It was also more than five years ago that the BoE launched radical quantitative easing to stimulate economic growth with billions of pounds of newly-created cash.

The International Monetary Fund recently forecast that growth in Britain, a member of the European Union but not of the eurozone, would outpace the world's major advanced economies this year. Also on Thursday, the European Central Bank said it had decided to keep its key interest rate on hold at the level of 0.15 percent.