The Bank of England will maintain its current bond-purchase program next week amid signs the economy avoided another recession and signals from some policy makers that the current round of stimulus may be the last.
The nine-member Monetary Policy Committee led by Governor Mervyn King will hold its asset-purchase target at 325 billion pounds ($515 billion), following last month’s 50 billion-pound increase, according to all 45 economists in a Bloomberg News survey. The program to buy debt with newly created money started in March 2009 with a 150 billion-pound round of purchases.
Reports this week showed U.K. manufacturing continued to expand in February and construction growth accelerated. As the MPC prepares to meet on what will be the third anniversary of the start of so-called quantitative easing, policy maker Martin Weale said there may not be an argument for doing more once the current round ends, and Deputy Governor Paul Tucker said the bank must be alert to the need to withdraw stimulus.
“At this meeting they’re going to be aggressively on hold,” said Alan Clarke, economist at Scotia Capital Europe Ltd. in London. “Remarks lately from the MPC have been playing down the prospect of more QE.”
Weale said Feb. 29 that inflation may prove more persistent than the central bank expects, citing higher oil prices and potential wage pressures as the economy recovers. Tucker said a day earlier policy makers “must be alert to the need gradually to withdraw stimulus as and when recovery builds.”
Their colleague Paul Fisher said Feb. 26 that if recent positive developments continue, “that would put more weight onto the argument for stopping rather than carrying on” with bond purchases.
David Miles, who along with Adam Posen was defeated in a push to add 75 billion pounds of stimulus last month, has made the case for looser policy. He said on March 1 that “aggressively loosening monetary policy now” could generate a quicker recovery and allow the central bank to begin raising interest rate sooner to tame inflation.
While consumer-price growth eased to 3.6 percent in January, the weakest in 14 months, it’s held above the Bank of England’s 2 percent target for 26 months. Weale has pointed to risks from crude-oil prices, which have risen about 24 percent in the past six months on concerns that tension in the Middle East that could disrupt supplies.
At the same time, there are signs that European leaders are getting to grips with the debt crisis that raised borrowing costs for some euro-area nations and is pushing the region’s economy back into a recession. Officials agreed to a second bailout for Greece, while yields on the debt of Italy and Spain have declined in recent months.
The bank will also hold its key interest rate at a record low of 0.5 percent, according to all 53 economists in a separate poll. Policy makers cut the rate to that level in March 2009 and have kept it there ever since.
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