Economy cash boost likely - but not yet
Wednesday 23 November 2011
Further emergency support for the economy is on the cards, according to minutes of a Bank of England meeting, but it is likely that no action will be taken before February.
The nine-strong Monetary Policy Committee (MPC) voted unanimously in favour of holding the level of quantitative easing (QE) at £275 billion this month, following October's decision to inject a further £75 billion into the economy.
While some MPC members said current risks to the recovery - such as the threat posed by the eurozone debt crisis - could warrant another round of QE in due course, the committee saw "little merit in fine tuning" at this stage.
The MPC, which also voted unanimously in holding interest rates at historic lows of 0.5%, said October's boost would take a further three months to complete and it would be difficult for the markets to cope with a further increase within this period.
Vicky Redwood, chief UK economist at Capital Economics, said the minutes suggest the committee will boost QE - although not until February.
The minutes are published a week after the Bank revealed its quarterly inflation report, in which it forecast a heightened risk of a double-dip recession and paved the way for another bout of QE.
Bank governor Sir Mervyn King sent a stark message to political leaders as he flagged an unresolved eurozone debt crisis as the "single biggest risk" to the economy.
The worsened prospects for the UK economy mean inflation is likely to fall far quicker than previously estimated, hitting the Government's 2% target in the second half of next year before falling to as low as around 1.3% in 2013.
But the MPC noted in the November minutes it was a possibility that inflation will fall slower next year than the pace implied in its central projections.
Howard Archer, chief UK and European economist at IHS Global Insight, said the QE stock is likely to increase to as much as £375 billion by the second quarter of 2012.
He said: "Despite some concerns within the MPC that inflation may not fall back as quickly as expected by the Bank of England, it still seems very much a question of when will further quantitative easing occur and how much more?"
The MPC said the threat of the worst risks from the eurozone debt crisis crystallising had increased and worsened the strains on bank funding and financial markets more generally.
Members reiterated their belief that the UK economy would stagnate in the final quarter of the year, following 0.5% gross domestic product growth between July and September.
David Kern, chief economist at the British Chambers of Commerce (BCC), said QE would help boost demand but would not be enough to support businesses.
He said: "We expect the Chancellor to announce a major credit easing programme in next week's Autumn Statement, and we hope that the MPC will play its part to support this plan."
Chancellor George Osborne unveiled proposals to introduce credit easing - purchasing corporate bonds from private sector companies to provide much-needed finance - at the Conservative Party conference last month.
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