The Bank of England kept interest rates at 0.5 per cent and made no change to its asset purchase target today, keeping in place stimulus measures designed to nurse the economy back to health.
The central bank's decision to make no change to its quantitative easing target was also widely expected, and there was no discernible market reaction.
Price pressures in Britain have picked up faster than expected in recent months, but the economic recovery remains tentative and the euro zone's debt crisis has shown just how fragile sentiment can be.
European central banks began buying euro zone government bonds under a €750 billion emergency rescue package today, helping the euro and European stocks recover some of last week's heavy losses.
Britain's central bank has bought almost £200 billion of UK government bonds under its quantitative easing programme. It halted purchases in February but left open the option of reviving the scheme should economic conditions deteriorate.
Britain's inconclusive election outcome provided additional justification for the BoE's wait-and-see approach.
David Cameron's Conservatives were attempting to reach a power-sharing deal with the Liberal Democrats today after an election last Thursday threw up no outright winner -- the first time Britain has been in this position since 1974. Investors are nervous a fragile coalition or minority government could lack the political firepower needed to cut a budget deficit running at more than 11 per cent of GDP.
The Bank of England cut rates to their current record low in March 2009 when the economy was still reeling from the global credit crunch.
Things have improved since then but headwinds remain, not least from a public spending squeeze that some predict will be the toughest since the aftermath of World War Two. The BoE will be reluctant to tamper with monetary policy until the extent of the fiscal pain becomes clear, and that will depend on how quickly a new government is formed.
Reuters