Bank of England holds key interest rate at 0.50%

The Bank of England held its key interest rate on Thursday at a record-low 0.50 percent, in its first meeting since divisions emerged over when to tighten policy.

The central bank's nine-strong monetary policy committee also opted to keep the level of cash stimulus, or quantitative easing, at £375 billion ($622 billion, 473 billion euros), it said in a statement.

Investors shrugged off the news however because the decisions were in line with market expectations in view of buoyant British economic growth but also slowing inflation.

"The Bank of England has left policy unchanged as widely expected," added ING economist James Knightley. "The economy continues to move in the right direction."

- ECB slashes rates -

In contrast, shortly after the BoE announcement, the European Central Bank slashed its key interest rate to a historic low of 0.05 percent from 0.15 percent as it battles the threat of deflation.

That decision, which surprised the markets, pushed the euro down sharply against the dollar.

Both the British and eurozone central banks are worried about unduly low inflation -- but the ECB's outlook is compounded by sluggish economic growth.

There had been intense speculation this week that the eurozone could open the QE cash floodgates to ward off deflation.

For more insight into BoE policymakers' thinking this month, markets must wait until September 17 for publication of minutes from the meeting.

In August, the MPC was divided for the first time in more than three years, with policymakers Ian McCafferty and Martin Weale calling for a quarter-point rise from 0.50 percent.

In the event, the panel voted 7-2 in favour of no action, citing "insufficient evidence" of inflationary pressures.

British borrowing costs have stood at the record-low level since March 2009, when the bank also launched its radical QE asset purchase scheme.

Capital Economics analyst Samuel Tombs said that easing inflation and the housing market's fading recovery likely persuaded policymakers to maintain the status quo.

"The recent weakness of inflation and wages alongside the cooling of the housing market suggests that the number of MPC members voting to keep interest rates on hold at today's meeting is unlikely to have declined," said Tombs.

"And with inflation set to ease further, we still think that a 2014 hike will be avoided."

In recent months, market speculation has grown that the BoE could deliver its first rate increase later this year or in early 2015.

- British inflation slowdown -

Britain's 12-month inflation slowed to 1.6 percent in July from 1.9 percent in June, and has held below the bank's official 2.0-percent target so far this year.

"The data flow over the past month has also hinted at a slowing in the housing market and the manufacturing sector while wage growth remains virtually non-existent and inflation is below target," added Knightley.

"We therefore doubt that Ian McCafferty and Martin Weale were joined by any other members of the MPC in voting for a rate rise today."

Many economists do not expect an increase before the nation's general election in May 2015.

The British economy grew by 0.8 percent in the second quarter of this year, matching its output from the previous first three months.

Growth in the 18-country eurozone, however, ground to a halt in the second quarter, dragged down by France and Germany.