The Bank of England will not re-boot its multi-billion pound stimulus programme this month, even as warnings of a ‘triple dip' into economic contraction begin to surface in the wake of chancellor George Osborne’s gloomy mini Budget yesterday.
The Bank’s monetary policy committee voted against an extension to its quantitative easing (QE) scheme, after the last of the £375 billion of asset purchases was spent in November. The nine man panel, which meets monthly on Threadneedle Street, also held interest rates at their record low of 0.5%.
The decision comes after Osborne yesterday delivered lower forecasts for UK economic growth, including a prediction of a 0.1% decline in the current quarter. The same decline in exports that forecasters at the Office for Budget Responsibility blamed for the decline in growth was behind data this morning showing the UK’s trade deficit widened more than expected in October.
Alongside weak business surveys, this data has raised concerns that the UK could slide back into recession after growth of 1% in the third quarter of the year. ‘There is a fighting chance that 'Triple Dip' headlines will be able to retake the front pages of the newspapers from Will & Kate,’ commented Scotiabank economist Alan Clarke this morning.
The Bank itself downgraded its growth forecasts three weeks ago, with governor Mervyn King warning output would ‘fall back sharply’ this quarter.
The outlook for inflation has also worsened. The consumer prices index shot to a five-month high in October as the trebling in university fees and rising food prices forced up the cost of living.
The Bank has been partly waiting for results from its new Funding for Lending programme to get banks to lend more before it decides whether to create more money. In a preliminary update on Monday, its figures showed that the impact of the scheme had so far been small, with banks borrowing a total of just £4.4 billion through the scheme in the third quarter.
While there has been doubt about the QE scheme’s impact on the UK economy, it did provide Osborne’s finances with a boost in his Autumn Statement yesterday when he was able to include the transfer of QE gilt income from the Bank of England to the Treasury.
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.