UK keeps key rate unchanged, says another cut possible this year

The Bank of England is seen in the City of London © Toby Melville
The Bank of England (BoE) has kept the key lending rate on hold at a record low 0.25 percent on Thursday. The regulator said a rate cut to just above zero is still possible later this year.

The BoE also left the tune of its quantitative easing program unchanged at £435 billion ($576 billion).

The bank’s Monetary Policy Committee (MPC) said it is more optimistic about growth in the economy as “a number of indicators of near-term economic activity have been somewhat stronger than expected,” since the rate cut from 0.5 percent to 0.25 percent last month.

“The committee now expects less of a slowing in UK GDP growth in the second half of 2016,” the central bank said.

The BoE added it’s tough to predict economic growth for next year. “Moreover, there had been no new information since the August inflation report for longer-term prospects for the UK economy.”

Analysts are expecting another rate cut this year.

"Although the post-referendum economic data has been decidedly mixed, we expect growth to slow sharply in 2017. We anticipate the MPC will move again to cut interest rates before the end of the year," said Suren Thiru, head of economics at the British Chambers of Commerce.

However, it is unlikely to boost further economic growth.

“UK interest rates are already close to zero, further cuts will do little to stimulate growth and are likely to exacerbate the cost pressures that both businesses and consumers may face in the coming months from a weakening currency,” Thiru said.

The pound traded at $1.3195 as of 13:35 GMT compared to $1.3236 just before the BoE's policy decision was released. The blue chip FTSE 100 index was up 0.2 percent at 6,685.81.