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Bank of England votes against QE stimulus extension
Bank of England does not extend stimulus programme beyond £375 billion amid signs of UK economic recovery.
The Bank of England has decided not to extend its aid programme of bond purchases, in what was likely to have been a close vote by the bank’s nine-man monetary policy committee (MPC) amid improvements in the UK economy and financial markets.
The last of the £375 billion of quantitative easing was spent last week, but the MPC voted today not to create more money, while keeping interest rates at their long-term low of 0.5%.
The decision by the committee, under the leadership of Mervyn King, was expected after official figures showed the UK has finally emerged from a double-dip recession and amid signs of improvements in the US and Chinese economies.
Committee members have increasingly expressed concern about the diminishing impact of the stimulus, and they also want to monitor the success of the Funding for Lending scheme, which was only launched in August.
Meanwhile, financial market conditions have improved after action by the European Central Bank and US Federal Reserve in September.
If the bank were to extend QE now, it might be seen as acknowledgement that the UK economy is worse than the official figures suggest, which could in turn dent consumer confidence. This would not please chancellor George Osborne, who will be hoping to underscore the strength of the UK’s economic recovery when he delivers his Autumn Statement on 5 December.
There is also a risk of a short-term rise in inflation – which has fallen to a near three-year low of 2.2% on the consumer prices index – when food prices and energy bills rise.
But a further extension to the QE scheme is still expected in the future; King emphasised in a speech two weeks ago that the Bank of England was ready to inject more cash should the economy fade.
Following the news that the UK economy grew by a surprisingly strong 1% in the third quarter of the year, business surveys have been less upbeat, with a fall in the PMI services index to its lowest since the end of 2010.
And much uncertainty still remains in the world economy, with the threat of the ‘fiscal cliff’ in the US now thought to be the biggest concern to global economic stability.
The Bank of England does not publish an explanation for unchanged monetary policy, but the minutes of this week’s two-day meeting will be closely scrutinised when they are published in two weeks.
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