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BoE To Stay Pat On Rates, QE Seen On Hold


Bank of England policymakers are likely to maintain the size of its bond purchases unchanged, as concerns about a technical recession eases and inflation remains sticky due to rising oil prices.

That said, the nine-member Monetary Policy Committee is set to see pressure from some members to boost the quantitative easing from GBP 325 billion. The committee is also expected to retain the benchmark interest rate at its record low level of 0.50 percent.

The BoE is set to announce its decision at 7.00 am ET.

In March, David Miles and Adam Posen sought a GBP 25 billion increase in monetary stimulus as they assessed that loosening is needed to stimulate demand.

British Chambers of Commerce's Chief Economist David Kern said a further GBP 25 billion in QE would be unnecessary as it would have only a marginal effect. But the MPC should reconsider its reluctance to include assets other than gilts, such as securitied SME loans, in the QE programme, he said.

Economists see chances of more QE at the May meeting, when the additional round of bond purchases will be exhausted. By the next month, policymakers are likely to get a clearer picture of inflation and growth outlook from the quarterly Inflation Report.

Capital Economics Chief UK Economist Vicky Redwood said further asset purchases are likely to be announced later this year. Ultimately, it would grow as big as GBP 500 billion.

The economy is likely to avoid a recession amid signs of improvement in economic performance. The British Chambers of Commerce forecasts the economy to expand 0.3 percent in the first quarter of 2012.

On the other hand, the Organization for Economic Co-operation and Development sees technical recession in the U.K., with GDP falling 0.4 percent in the first quarter, after contracting in the final quarter of 2011.

Inflation slowed for a fifth consecutive month in February to reach the lowest in fifteen months. The rate fell to 3.4 percent from 3.6 percent in January.

The BoE expects inflation to fall back to its 2 percent target by the end of 2012. However, there are risks to inflation that it might fail to fall back as expected due to rising oil prices.

by RTTNews Staff Writer

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