Preview: Bank of England's MPC to sit tight on QE at Jan meeting
Wednesday, 11 January 2012 05:28
The Bank of England’s Monetary Policy Committee (MPC) will announce its decision on interest rates and quantitative easing (QE) tomorrow with no major policy initiatives expected this month.
A further injection of money into the economy through a resumption of the Bank of England’s programme of quantitative easing is expected imminently, but most analysts expect a further £50 billion of QE to be approved at next month’s meeting taking the amount from £275 billion to £325 billion. It is also likely that this will be increased further before the summer.
The bank voted for a further £75 billion of QE in October and the consensus has been that the Bank of England would judge the effects of this after 3-4 months to see how the money was filtering through the economy, if it getting to the areas of the economy that needed it and if it was easing the credit problems of businesses.
The MPC could surprise us all by judging that the time for more QE is now. When the last decision on QE was made at October’s meeting most analysts had expected that it would come in the following month, November.
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The minutes from December’s meeting suggested that February would be the most likely date for further QE as all nine members of the MPC voted against further QE and the minutes noted: “Assessing the effects of the current programme was complicated by the volatility in financial markets.” and that “some members continued to note that the balance of risks to inflation in the November Inflation Report projections meant that a further expansion of the asset purchase programme might well become warranted in due course.”
Howard Archer, Chief UK & European Economist at IHS Global believes February is the most likely date. He said: “Bank of England inaction on Thursday seems probable given that October's £75 billion extension to the Quantitative Easing programme is not due to be completed until early February.”
What is more certain is that there will be no change in interest rates. They are set to stay at 0.5 per cent for a 33rd consecutive month with almost all commentators saying that there will be no change in 2012.
The previous minutes of meetings show that there has never been any discussion about lowering interest rates below 0.5 per cent.
Mr Archer added: “While interest rates are unlikely to go any lower, it seems highly probable that they will not rise during 2012 and at least the early months of 2013. We do not expect any hike before the second half of 2013 and it currently looks eminently possible that the Bank of England could keep interest rates down at 0.50% through to 2014.”
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