Bank of England sits tight on QE
2012-11-08 15:04:46
The Bank of England decided not to provide another cash injection, as the economy exited a double-dip recession and the positive impact of the Funding for Lending Scheme is yet to fully filter into the economy.
The nine-member Monetary Policy Committee governed by Mervyn King maintained its quantitative easing at GBP 375 billion. The previous GBP 50 billion-increase was announced in July and has been fully utilized, bringing the programme to a temporary halt.
The nine-member committee also left the interest rates unchanged at 0.50 percent, the lowest level since the bank was established in 1694. The rate has not been changed since early 2009.
Some policymakers are now skeptical about the effectiveness of further quantitative easing. Vicky Redwood, chief UK Economist at Capital Economics said more worrying is the possibility that the MPC held fire today because it thinks that it has reached the limits of what monetary policy can achieve.
Nonetheless, IHS Global Insight's chief UK economist Howard Archer said policymakers will give a final GBP 50 billion of QE in the early months of 2013 as economic recovery looks fragile, feeble and far from guaranteed.
BoE chief Mervyn King recently said the central bank is ready to add more stimulus if the recent positive signs in the economy fade. At the October meeting, there were differences of views about further easing, signaling that today's meeting could have been a closer call. The minutes of the meeting is due on November 21.
The BoE along with the government had initiated the 'Funding for Lending Scheme' in August to boost lending to households and companies. The scheme is expected to boost credit availability over the fourth quarter.
Following three straight terms of contraction, the economy expanded 1 percent in the third quarter, the fastest pace in five years. However, recent surveys highlighted the feebleness of the recovery.
The Purchasing Managers' survey showed that the service sector expanded at the slowest pace in 22 months in October, while the manufacturing sector contracted for a sixth month.
Easing concerns about inflationary pressure, official data showed that consumer price inflation in September was at the lowest level in three years, down to 2.2 percent from 2.5 percent in August.
Redwood said BoE's new set of forecasts will suggest that inflation will hit the 2 percent target at the policy horizon without any extra stimulus. The BoE is slated to publish its quarterly Inflation Report on November 14.