The Bank of England (BoE), the UK’s central
bank, has matched its eurozone counterpart and held interest rates
at their current level.
The BoE announced at noon today interest rates
will remain at 0.5% and also said it will maintain its £325bn
quantitative easing programme.
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The interest rate decision follows the
European Central Bank’s announcement the previous day to maintain
the cost of borrowing at 1% despite calls to lower it to help ease
the eurozone crisis after a turbulent few days.
Phil Gerrard, responsible for European leasing
business with advisory firm Grant Thornton, said interest rates
remaining the same was not surprising but said some businesses were
looking for more.
“I don’t think this makes life a lot
easier psychologically for the lenders because nobody knows what’s
going to happen next and in some quarters a number of people are
looking for them [BoE and ECB] to even reduce them a little further
just to provide some stimulus.”
“Jitteriness”
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By GlobalDataGerrard added he expects the BoE to introduce
more quantitative easing over the summer as he believes the UK will
not hit its growth forecasts.
“That is not down to an inherent weakness in
the UK economy,” said Gerrard, “it’s jitteriness about Europe.
Financial institutions and big business are just not
confident.”
The central bank of China announced it would
be cutting interest rates for the first time since 2008 which
Gerrard said is a sign of eurozone uncertainty.
“The Chinese reduction in interest rates
reflects the fact they can see demand is soft in the eurozone and
they are not confident it is going to get sorted out,” he said.
Accelerating contraction
Economic data released at the start of the
week revealed a decline in output across Europe leading to
predictions of GDP decline.
The eurozone composite Purchasing Managers
Index from Markit, which surveys a representative group of
manufacturers and service firms, declined from May to April as did
the Services Business Activity Index, dropping to a seven-month
low.
Output in the eurozone’s largest economy,
Germany, fell for the first time since last November and, although
modest, the rate of decline was the fastest for almost three
years.
Chris Williamson, chief economist at Markit
said the data indicates the eurozone economy is contracting at its
fastest pace for around three years and said it would not be
surprising to see GDP for the region contract by 0.5% in the second
quarter.
“Companies report business activity to have
been hit by heightened political and economic uncertainty, which
has exacerbated already weak demand both in the euro area and
further afield.
Grant Thornton’s Gerrard was more positive. He
said: “It is not all a bad news story; there is good news. There is
a lot of business in the leasing sector, there is pent-up demand,
but, while funds are short and banks are drawing in, nobody is
going forward.”
There was a positive start to the day from the
eurozone as a Spanish bond sale sold better than anticipated,
reaching €2.07bn in total, although yields did increase.
Investors appeared to have been buoyed by the
possibility of a Spanish bank bailout which also helped rally
European stock markets at the time of writing.
grant.collinson@vrlfinancialnews.com
