Bank of England keeps status quo amid recession threat

The Bank of England on Thursday froze interest rates at a record-low 0.50 percent, where borrowing costs have stood for four years, and maintained its emergency stimulus programme as the British economy teeters on the brink of a triple-dip recession. The announcement came on the same day that Prime Minister David Cameron pledged that his coalition government would stick to its harsh austerity measures despite a turbulent few weeks that saw Britain lose its top-level AAA credit rating. The BoE revealed in a statement that its nine-member monetary policy committee (MPC) voted to maintain its reference lending rate after a two-day meeting. The panel also decided against changing its asset purchasing programme, or quantitative easing (QE), which stands at £375 billion ($589 billion, 434 billion euros). Economists said the QE decision had been on a knife-edge with Britain at risk of its third recession since 2009, and after outgoing BoE governor Mervyn King had called unsuccessfully for more stimulus funds in February. Soon after the BoE announcement, the European Central Bank said it had decided to leave its main refinancing rate at a historic low of 0.75 percent, as expected, and played down concerns that political gridlock in Italy could trigger a resurgence in the debt crisis. Britain is not a member of the eurozone but relies heavily on the bloc for its day-to-day trading of goods and services. Recent data showed that British gross domestic product (GDP) shrank 0.3 percent in the fourth quarter of 2012 compared with the previous three months. Another contraction in the first quarter of 2013 would place Britain in its third recession since the 2008 global financial crisis. The economy has meanwhile been hit hard by ongoing state austerity measures from the coalition government that took power in 2010. However, Cameron argued Thursday that changing course now would plunge Britain "back into the abyss". Cameron, speaking at a factory in West Yorkshire in northern England, admitted that the path ahead for Britain "was tough". "But be in no doubt, the decisions we make now will set the course of our economic future for years to come," he said. "And while some would falter and plunge us back into the abyss we will stick to the course." Late last month, Moody's ratings agency stripped Britain of its AAA credit assessment. Moody's downgraded Britain by one notch to Aa1, arguing that government debt was still mounting and that growth was too weak to reverse the trend before 2016. The downgrade, along with expectations of more stimulus, have been weighing on the British pound in recent weeks, but sterling rose against its main rivals following Thursday's decision. The bank will publish minutes from Thursday's gathering on March 20. Minutes from the February meeting showed that King had called for £25 billion worth of more stimulus. But in the end the MPC voted 6-3 to keep QE on hold. Under quantitative easing, the Bank of England creates cash that is used to purchase assets such as government and corporate bonds with the aim of boosting lending and in turn economic activity. QE can stoke inflation however as it is tantamount to printing money.