Bank leaves bond buying programme on hold

Monetary Policy Committee declines to extend £275bn quantitative easing

Monetary stimulus was held steady by the Bank of England yesterday, despite multiplying indications of a weakening UK economy. The Bank's Monetary Policy Committee (MPC) announced that its interest rate would remain at a record low of 0.5 per cent and that the £275bn quantitative easing (QE) programme would not be extended. David Kern, the chief economist at the British Chambers of Commerce, called the decision not to increase QE "disappointing" and urged the Bank to make "every effort to underpin business confidence and avoid a setback".

Many economists expect the QE programme to be increased next year when the present round of government bond buying comes to an end. Howard Archer, an analyst at IHS Global Insight, suggested that the MPC's decision not to extend QE might have been motivated by concerns among policymakers about potential damage to the Bank's credibility if inflation does not fall back as rapidly next year as they have forecast. "Holding back on more QE until early 2012 gives the MPC more time to judge whether inflationary pressures are easing, which some committee members believe is important for the Bank of England's credibility before it goes further down the QE road," he said.

Consumer price inflation is running at more than 5 per cent at the moment, well above the Bank's official target of 2 per cent. The MPC expects inflation to fall quickly next year as energy prices stabilise and the economy weakens.

In October, the MPC took markets by surprise when it increased its £200bn QE programme by £75bn over five months, saying that the move was justified by a stark deterioration in the economic outlook over the summer. But since October, the economic outlook has continued to worsen, with surveys of purchasing managers pointing to weaker growth, or even contraction. On Wednesday, the National Institute of Economic and Social Research estimated that growth slipped from 0.4 per cent to 0.3 per cent over the past three months and a report from the Office for National Statistics showed a 0.7 per cent contraction in manufacturing output in November.

The Organisation for Economic Co-operation and Development has forecast that Britain is entering a mild recession. And last week, the Office for Budget Responsibility said that its forecast that the economy would grow by 0.7 per cent in 2012 was dependent on eurozone leaders successfully "struggling through" the present continental sovereign and banking debt crisis.

George Osborne warned the House of Lords' Economic Affairs Committee yesterday that a collapse of the single currency would do "enormous damage" to the economy. "Those who say we would have a year or two of hardship, then bounce back out of it, are maybe somewhat optimistic," he said.

The Chancellor also cautioned that the Treasury's contingency planning for a eurozone breakdown could not fully insulate the UK from the impact. "I would give fair warning that however much contingency planning you do, a disorderly collapse of the euro would do huge damage to the UK", he said. "It doesn't matter how many plans you have to deal with that, you could make a bad situation less worse, but it would still be a bad situation."

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Tax Manager / Accountant

£35 - £50k DOE: Guru Careers: A Tax Manager / Accountant (ACA / CA / CTA) is n...

Ashdown Group: Contracts Executive - City of London

£35000 - £37000 per annum + benefits: Ashdown Group: Contracts Executive - Cit...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree Group have been well esta...

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Day In a Page

Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks