The Bank of England's Monetary Policy Committee on Thursday left the central bank's key lending rate unchanged at 0.5%, an all-time low.
Policy makers were widely expected to stay on the sidelines after an aggressive series of rate cuts slashed the bank's benchmark from 5% to 0.5% since October.
In a brief statement, the central bank said it would continue its 75 billion pound ($111 billion) quantitative-easing program designed to increase money supply and stave off a deflationary spiral.
"The committee noted that since its previous meeting a total of just over 26 billion pounds of asset purchases had been made and that it would take a further two months to complete that program," the statement said.
British stocks offered little reaction to the decision. The FTSE 100 stock index remained 0.2% higher at 3,934.83.
The British pound was also little moved from levels seen before the announcement. Versus the dollar, sterling fetched $1.4674, a loss of 0.2% on the day. The euro traded at 90.46 pence, up 0.3%.
The yield on the 10-year gilt, or British government bond, was near 3.31%, down from around 3.34% Wednesday.
Attention will now turn to the April 22 release of the minutes of this week's MPC meeting for clues to the panel's thoughts on the program's direction.
The strategy, which was approved by the British Treasury, is centered on pumping electronically-created new money into the economy through purchases of government bonds and corporate paper. The bank, which is authorized to expand the program to 150 billion pounds if deemed necessary, hopes that by creating new money it will spur nominal spending and snuff out deflationary threats.
Meanwhile, MPC members have strongly signaled that the official interest rate is unlikely to fall below 0.5% out of fear a further cut could squeeze bank spreads, damaging the profitability of crippled banks. That could undercut efforts to boost lending, amplifying the credit crunch, economists said.
There's also a suspicion that a further cut would be unlikely to be passed on, providing little beneficial impact for borrowers and further hurting savers, said Howard Archer, chief U.K. and European economist at IHS Global Insight.
Archer expects interest rates to hold at 0.5% well into 2010 as gross domestic product continues to contract before stabilizing next year and then beginning a slow recovery.
The move into quantitative easing initially lowered borrowing costs across the economy, with the 10-year yield on U.K. government bonds, or gilts, temporarily falling below 3%.
The 10-year yield was back above 3.3% this week, while other borrowing costs have also rebounded in recent weeks.
Economists note there's no guarantee the program will encourage banks to lend or people to spend.
"Banks could still hoard the newly available funds to strengthen their balance sheets rather than boost lending to the private sector," said Ruth Stroppiana, international economist at Moody's Economy.com.
On the other hand, the strategy could prove to be "too expansionary," she said, leading to a resurgence of inflation in the medium to long term.
The central bank has noted the risk, indicating it would sell back some of the assets or move to quickly raise its key lending rate if price stability was under threat, Stroppiana said.
The MPC likely discussed some tentative signs that the British economy is at least beginning to stabilize. Purchasing managers indexes posted strong rises in March but still reflect a contracting pace of activity.
The Markit purchasing managers index for the manufacturing sector rebounded to 39 from a reading of 35 in February, the largest monthly rise since 1996.
While a rebound is encouraging, a PMI level of 39 remains "exceptionally weak," noted George Buckley, U.K. economist at Deutsche Bank. A figure of less than 50 means most purchasing managers saw falling activity, while a figure of more than 50 means most saw a rise.
British industrial output, which measures production by factories, utilities and mines, fell 12.5% in February, compared with the same month in 2008, the biggest fall since current records began 40 years ago, the Office for National Statistics said Tuesday.
And a report Wednesday by the National Institute of Economic and Social Research, a closely followed think tank, underscored the gloom surrounding Britain's economic outlook.
The NIESR estimated that British gross domestic product shrank by 1.5% in the first quarter of this year, following a 1.6% contraction in the final three months of 2008. In a statement, NIESR said the difference between the fourth- and first-quarter output levels was attributable to rounding.
Moreover, the current fall in output "so far is very similar to that of the recession which began in the summer of 1979," the NIESR said. "While there is no obvious reason why the profile of the current recession should match that of the early 1980s, the rate of output decline so far has been very similar."
