Bank of England is likely to come up with additional stimulus as the current domestic economic situation warrants an immediate action to prevent the economy from sinking deeper into recession.
The minority in the Monetary Policy Committee voting for quantitative easing last month could turn into a majority this week and provide the U.K. economy with another GBP 50 billion additional stimulus. This will take the size of asset purchase programme to GBP 375 billion from GBP 325 billion.
As the latest economic data and surveys signal grim outlook, the possibility of a GBP 75 billion stimulus cannot be ruled out. Moreover, developments on the inflation front also support policy easing.
At the June meeting, four policymakers including the BoE Governor Mervyn King sought additional stimulus, while a majority of five resisted the demand as they preferred to wait for the results of the Greek election and further hints on the future of euro area.
King, David Miles and Adam Posen called for an increase of GBP 50 billion, while Paul Fisher preferred to boost the stimulus by GBP 25 billion in June.
Although the Monetary Policy Committee could wait until August's Inflation Report, there seems to be little point in doing so when the case for more stimulus is so strong, Chief UK Economist at Capital Economics Vicky Redwood pointed out.
The central bank first initiated quantitative easing in March 2009 with GBP 75 billion injection. Between March 2009 and January 2010, the MPC authorized the purchase of GBP 200 billion. The last expansion of GBP 50 billion was undertaken in February 2012.
The nine-member MPC is seen leaving the key interest rate unchanged at a historic low of 0.50 percent. The rate has been maintained at the current level since March 2009. The BoE is set to announce the decision on Thursday at 7.00 am ET.
At the meeting held in June, policymakers discussed cutting interest rate further, but they concluded that it would not have any advantages over an expansion of the asset purchase programme.
In May, annual inflation fell to 2.8 percent, the lowest level since November 2009. In its quarterly bulletin, the central bank said the upside risk to U.K. inflation has receded a little during recent months.
by RTT Staff Writer
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