Pound Sterling rises after BoE refrains from further QE

The sterling gained on most major counterparts, particularly the US dollar, the yen and the euro on the back of today’s policy statement by the Bank of England, reports Trading Point.

The central bank left interest rates unchanged at their long-term level of 0.5 per cent as anticipated, as well as keeping its asset purchase initiative on hold. The news that there will be no additional quantitative easing was good news for the pound as such a measure which includes bond buying normally weakens the UK currency.

The Bank of England’s Monetary Policy Committee were against further QE because of stubbornly high inflation that outweighs the danger of a lengthy recession an may renew risks from the debt crisis in the eurozone. The Bank’s policymakers indicated that British inflation may not drop below the two per cent goal as soon as predicted. Inflation increased in March, the first time it has done so in six months, hitting 3.5 per cent.

The UK economy contracted by 0.2 per cent during the opening three months of the year, putting the country officially back into recession. Meanwhile, previously positive business surveys have revealed slower growth. However, BoE Governor Mervyn King claimed that the economy appears set to recover gradually later in 2012.