View the article online at http://citywire.co.uk/money/article/a587854
Bank resists more QE amid economic uncertainty
(Update) Quantitative easing scheme maintained at £325 billion as fears about inflation trump economic growth worries.
The Bank of England has put the brakes on its programme of economic aid, choosing not to extend its asset purchase scheme beyond the existing £325 billion as it waits for further clues about the fate of the UK economy.
The base interest rate was maintained at 0.5%, a record low that has remained unchanged since March 2009.
The decision to halt the quantitative easing programme had been expected by the majority of City economists, though some had been calling for the nine-man monetary policy committee (MPC) to expand its bond-buying scheme by another £25 billion to see off the continuing economic headwinds.
Economists said that the MPC's decision showed that concerns about persistent inflation had trumped worries about the strength of the economy.
Though falling from a September peak of 5.2%, consumer prices inflation proved 'sticky' in March when it came in at a higher-than-expected 3.5%. This led one member of the committee, Adam Posen, who had consistently voted for more QE, to change his vote at the MPC’s April meeting.
At the same time, the economy has flatlined. Data has been mixed but recent figures from the Office for National Statistics showed that the UK had fallen back into a double dip recession.
Philip Shaw, an economist at Investec, commented: 'The committee must either be feeling more optimistic than most over the economic outlook or seriously concerned that inflation will remain stuck over 2% for a long period, possibly a combination of both.'
The QE scheme, which mainly involves the purchase of UK government bonds (gilts) from pension funds and other institutions, has proved controversial, with doubts about its impact for the real economy.
Though the MPC has chosen not to extend its QE programme today, it could still opt to provide more support in the future.
'While QE2 has now had its last hurrah, we certainly would not rule out its later reintroduction as QE3,' said Nomura economist Philip Rush.
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by Himanshu Singh on May 27, 2015 at 03:38