Bank Of England Halts Quantitative Easing

(Guardian) – THE BANK OF ENGLAND’S monetary policy committee today announced that it was putting its 11-month, £200bn programme of asset purchases, known as quantitative easing, on hold.

The move, widely expected in the City, comes as the jury is still out as to whether the British economy – which grew by a meagre 0.1% in the fourth quarter of 2009 – has entered a self-sustaining recovery or is still dependent on official life support.

The MPC also, as expected, left its key interest rate steady at a record low of 0.5%. Few analysts expect any change in rates until later this year at the earliest, with whoever wins the spring election likely to start tightening fiscal policy.

The MPC began its QE experiment in March last year when the world economy was teetering on the brink of collapse and after it had slashed interest rates to nearly zero. It only completed the purchases, which were mainly of government bonds, or gilts, last week. Many other central banks around the world adopted similar policies.

In a downbeat statement accompany­ing its announcement, the MPC said that while the economy was likely to continue its gradual recovery, the committee was concerned that credit conditions in the economy were likely to remain “restrictive”.

And it stressed that it was pausing, not stopping, QE: “The committee will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them.”

Financial markets took the news broadly in their stride. The FTSE 100 remained around 5214, down 39 points on the day. The 10-year gilt future remained in positive territory. The pound, however, nudged slightly higher against both the dollar and euro to $1.585 and €1.145.

“Even if this really is the end of quantitative easing, any policy tightening still looks a long way off given that the recovery is likely to remain fragile for some time to come,” said Howard Archer, economist at IHS Global Insight.

Ian McCafferty, CBI chief economic adviser, added: “It is unsurprising that the Bank has kept interest rates and its quantitative easing policy at the same levels. The situation is finely balanced.

“The economy is stabilising but still faces some serious headwinds, and recovery remains shallow-rooted. However, near-zero interest rates, the existing £200bn QE package and the sharp fall in sterling are already extremely expansionary and inflation has exceeded expectations consistently in recent months.”