Economic News

LONDON (ShareCast) - Minutes from June's policy meeting have revealed the Bank of England is in no rush to start raising interest rates despite a flow of better economic news.

The nine-member Monetary Policy Committee voted 9-0 in favour of keeping rates an historic low of 0.5% and to cap its programme of quantitative easing at £125bn.

"Overall, the risk of a continued sharp contraction in output in the near term had receded somewhat," noted rate setters.

But it did acknowledge that the medium-term outlook for the economy, and therefore inflation, had not changed materially since its last inflation report in May.

"While the near-term prospects had improved somewhat the balance of risks to inflation further out had not altered materially since then," the minutes read.

At its get together in May, the central bank decided to pump an additional £50bn into its asset purchase programme, taking the total to £125bn.

A maximum of £150bn was set aside for the scheme. Many expected the remaining £25bn to be spent at some point.

In May, the Bank played down talk of economic recovery, suggesting it will take longer than previously thought, as it cut projections for the UK economy this year.

Its quarterly inflation report forecast the economy would shrink by 4.5% in 2009 with a full recovery only starting to come though at the back end of 2010. Growth is tipped to reach 2.5% by 2011.

Howard Archer, chief UK economist at IHS Global Insight, thinks the BoE will remain cautious in its policy approach for some time to come.

As a result, he predicts interests rates will stay at 0.5% for the rest of 2009, and "very possibly" well into 2010.