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Bank holds rates firm but choked economy still in line for QE boost

by Sarah Miloudi on Jan 10, 2013 at 12:20

Bank holds rates firm but choked economy still in line for QE boost

The Bank of England has held interest rates at 0.5%, but more stimulus remains a possibility.

The monetary policy committee had widely been expected to hold policy firm, however economists are mooting the possibility of additional quantitative easing (QE) as well as a shift toward more radical options.

Pointing to recent data hinting at underlying weakness, a contraction in the fourth quarter growth rate looks increasingly likely, they said.

Inflation is also set to stay above the Bank's 2% target, while the eurozone is still struggling to overcome its difficulties.

'If we are right in expecting the economic stagnation to persist throughout this year, and tensions in the eurozone to re-emerge before long, then growth concerns are once again likely to trump near-term inflation worries,' Capital Economics' Vicky Redwood said, arguing the scene was being set for more QE, probably in Spring.

'We still think more asset purchases are likely before long. Even if the committee were to pause in February, more QE in May would then be our best guess, and that is unlikely to be the end of it,' she added.

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