Bank of England rejects more emergency support as it maintains interest rate at 0.5%
Thursday 04 October 2012
Bank of England policymakers decided against unleashing further emergency support for the recovery today despite mixed signs over the health of the economy.
The Bank's Monetary Policy Committee (MPC) maintained interest rates at record lows of 0.5% and held its quantitative easing (QE) stock at £375 billion as it continues to work through £50 billion of asset purchases announced in July.
The no-change decision will increase focus on next month's meeting, at which most economists expect the Bank to pump more cash into the system through its QE programme.
Anna Leach, CBI head of economic analysis, said: "Looking ahead to November's meeting, we think that the committee is likely to favour further asset purchases. While there have been a few positive signs in recent data, underlying conditions remain relatively flat.
"Meanwhile, uncertainty around the international backdrop is likely to build further through the autumn, keeping confidence in check."
This month's interest rate meeting comes after a run of disappointing purchasing manager surveys in manufacturing, construction and services, suggesting a once-expected rebound to growth in the third quarter is far from guaranteed.
Manufacturing output shrank at a faster pace in September than the previous month, construction output also declined and the services industry saw its rate of growth slow down.
But Bank governor Sir Mervyn King insisted just last week that there were "a few signs" of recovery while official figures revealed a second upward revision to gross domestic product for the second quarter to a better-than-feared decline of 0.4%.
And last week's retail figures from the CBI showed a welcome rise in sales for this month after a disappointing August performance.
The bank will also be watching its funding for lending programme closely to see whether further QE is needed, with early encouraging signs of its scheme to free up the log-jam in lending.
It recently revealed that 13 banks and building societies have signed up and it is seeing tentative signs that credit is being boosted.
There have also been doubts cast over the usefulness of more QE, with the Bank's deputy governor Paul Tucker saying QE may be losing its "bite" and asking whether printing more money would be worth the risk to inflation.
Consumer prices index inflation has more than halved to 2.5% from 5.2% last September, but is forecast to start rising again by the end of the year, which could make the Bank cautious about pushing the button on more QE.
Martin Beck, UK economist at Capital Economics, said the committee is likely to increase QE in November - but also slash interest rates.
"The pressure on policymakers to do more to boost growth has not been eased by recent economic data," he said. "The inflation background could also look more encouraging by the time of the next meeting."
But the British Chambers of Commerce (BCC) said the MPC should resist clamour for more QE.
David Kern, BCC chief economist, said: "While the pressures for more QE are understandable, we believe an increase at the present time would be risky and unwise."
Mr Kern said more QE would only provide marginal benefits for the real economy, while creating longer-term risks such as financial distortions and higher inflation.
He went on: "More QE should only be considered if tensions in the eurozone pose new threats to the UK financial system.
"To boost growth, the MPC and the Government should take more effective steps to support a revival in business lending, both by using the existing QE programme more efficiently, and by employing tools other than QE alone."
- 1 Finland schools: Subjects scrapped and replaced with 'topics' as country reforms its education system
- 2 The West has it totally wrong on Lee Kuan Yew
- 3 Watch: Man takes selfie every mile of 2,600 mile hike, creates amazing timelapse video
- 4 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 5 Scientists have discovered a simple way to cook rice that dramatically cuts the calories
Germanwings captain Patrick Sondenheimer tried to break into locked cockpit door 'with an axe' as plane was descending
Amanda Knox murder conviction: Italian court overturns verdict for US student and Raffaele Sollecito in the killing of Meredith Kercher
Saudi Arabia says it won't rule out building nuclear weapons
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
Jeremy Clarkson 'could be given minder' ahead of a potential Top Gear return
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Revealed: Putin's army of pro-Kremlin bloggers
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...