Inflation threat sees Bank of England pause the printing press but more QE expected soon
11:25 GMT, 10 May 2012
Bank of England policymakers have chosen to keep the printing presses quiet for another month, despite the UK economy's shock return to recession.
The decision keeps the total fund used for quantitative easing at 325billion, which was set in February when the monetary policy committee voted in favour of a further 50billion in bond purchases, the last of which has now been spent.
Concerns that inflation is proving sticky appear to have stayed the hands the nine members against increasing QE, despite the threat posed by the reignited eurozone crisis.
Spring at last: The Bank of England's inflation forecasts have proved optimistic
But after the pause in the bond-buying
scheme, the growing crisis on the continent will add to pressure on the
MPC to consider more QE in the coming months.
the April meeting showed that the MPC had become concerned that inflation had not come down as quickly as the Bank had forecast.
Even Adam Posen, who until
last month had been lead cheerleader for QE, dropped his
call for an extra 25billion, and only David Miles voted for more asset-buying.
But that was before second-quarter GDP figures
showed the economy had fallen into a double-dip recession, muddying the
waters for monetary policy. GDP declined 0.2 per cent in the first three months of the
year after a 0.3 per cent drop in the final quarter of 2011.
Inflation has been stubbornly high, unexpectedly rising in March to 3.5
per cent, despite Bank governor Sir Mervyn King and his colleagues
predicting that CPI would fall to the Government's 2 per cent target by
the end of the year.
'Inflation has not been at the 2 per cent target for more than two years,' Barclays economist Simon Hayes said, adding that more asset purchases may do little to kick-start sluggish demand or ease the dangers from the eurozone debt crisis.
'Under this cloud of doubt the MPC may prefer to hold fire unless a fresh crisis, or more prolonged weakness in demand, makes the case for QE irresistible,' he added.
The accuracy of official growth data has
been called into question after a run of purchasing managers' surveys
in the first three months of the year revealed decent growth in the
manufacturing, construction and services sectors.
Howard Archer, chief economist at IHS
Global Insight, expects the MPC to 'keep the door very much open to more QE
should the economy fail to show underlying improvement over the coming
Interest rates were kept at their 0.5 per cent low for a 38th month.
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