Bloomberg News

BOE Seen Maintaining QE as It Monitors Stimulus, Lending Program

July 27, 2012

A London Taxi Passes The Bank Of England

The Bank of England will maintain the bond-purchase program it began this month as policy makers monitor the impact on the economy of the additional stimulus and their credit-easing program, economists said. Photographer: Simon Dawson/Bloomberg

The Bank of England will maintain the bond-purchase program it began this month as policy makers monitor the impact on the economy of the additional stimulus and their credit-easing program, economists said.

The nine-member Monetary Policy Committee led by Mervyn King will keep its target for asset purchases at 375 billion pounds ($589 billion), said all 40 economists in a Bloomberg News survey. It will also hold its benchmark interest rate at a record-low 0.5 percent, a separate poll showed.

Britain’s economy shrank the most in more than three years in the second quarter, pushing it deeper into a recession. Citing the impact of the euro-area debt crisis, the MPC announced a four-month, 50 billion-pound round of quantitative easing earlier this month and a new program to boost lending and pull the U.K. out of the slump. Policy makers also said they may review the merits of interest-rate cuts.

“Data point to more monetary easing in due course but nothing at next week’s meeting,”Brian Hilliard and other analysts at Societe Generale SA in London said in a note yesterday. “The committee has no need to rush on QE as it has an existing program to complete and, on rates, it has said it will not revisit the idea of a cut for several months.”

The Bank of England will announce the decisions at noon on Aug. 2, while the European Central Bank, which cut its benchmark rate to a record low this month, will unveil its latest move 45 minutes later. The Federal Reserve concludes its policy meeting the previous evening.

Euro Crisis

Minutes of the MPC’s July 4-5 meeting showed officials voted 7-2 to increase QE. They also said they may reconsider the case for an interest-rate cut after assessing their new lending and liquidity measures. Societe Generale changed its interest- rate prediction this week and now forecasts a 25 basis-point cut in November. It also said the economy will probably shrink 0.1 percent this year, revising a previous projection for 0.1 percent growth.

In addition to QE, the Bank of England started its Funding for Lending Scheme, designed to boost credit to companies and households. It will allow banks to borrow treasury bills from the central bank which they can use as collateral to fund lending.

The U.K. central bank cited concerns about the euro crisis for the new measures. Since the decisions, the turmoil in the region has continued to worsen, with yields on Spanish debt surging and concern mounting the nation may need a full bailout.

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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