The Bank of England’s monetary policy committee (MPC) has voted against re-booting its multi-billion pound stimulus programme this month, on a day in which central bankers are in the market’s gaze with incoming governor Mark Carney being quizzed by MPs.
Despite fears over a 'triple dip' after the UK economy contracted by 0.3% in the last three months of 2012, the MPC voted against an extension to its quantitative easing (QE) scheme, having spent the last of the £375 billion of asset purchases in November. The nine man panel, which meets monthly on Threadneedle Street, also held interest rates at their record low of 0.5%, as expected. The bank did however announce that it would re-invest £6.6 billion of gilts that would mature in March.
'The risks are weighted to the downside, not least because of the challenges facing the euro area,' according to a written statement from the committee.
Bank of England maintains Bank Rate at 0.5% and the size of the Asset Purchase Programme at £375 billion
The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £375 billion.
Over the past year, there has been considerable volatility in quarterly output growth. Looking through the influence of temporary factors, overall output appears to have been broadly flat. In large part that reflects sharp falls in particular sectors of the economy that are unlikely to be repeated in 2013. In contrast, the combined output of the manufacturing and services sectors has grown modestly. Business surveys suggest the pace of expansion is likely to remain muted in the near term. The weakness in overall output sits in sharp contrast to continued strong employment growth, suggesting that the financial crisis may have had some impact on the effective supply capacity of the economy.
ING economist James Knightley said there was little chance of a change to the Bank of England's stance in the short term as the global economy slowly improves: 'While the UK contracted in 4Q12, recent data flow has suggested that the UK will narrowly avoid a third official recession in the space of five years'.
Carney, who replaces Mervyn King as governor in July, was still being questioned when the Bank of England policy decision was announced at midday.
Carney's written statement to MPs to the Treasury Committee stated that the central bank ‘will need to design, implement and ultimately exit from unconventional monetary policy measures’.
Later comments from Carney though suggested that the current Bank of Canada governor would be more likely to take a 'dovish' stance at the Bank of England, keeping monetary policy loose.
The pound, which rose to a session high of $1.5725 during Carney's grilling, was up 0.25% to $1.5700 ten minutes after the Bank's policy announcement.
After the focus on Carney and UK monetary policy, attention later moves to Frankfurt, where the European Central Bank delivers its own policy decision, with no change expected.