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.”

Bank To Pump 25 Billion Pounds More Into Economy

(Reuters) – THE BANK OF ENGLAND EXPANDED its quantitative easing programme by £25 billion to £200 billion today, continuing its unprecedented scheme to revive Britain’s recession-hit economy.

Sterling shot up around a cent against the dollar and government bonds tumbled as many investors had expected a bigger expansion of the eight-month-old programme to buy assets, mostly UK government bonds, with newly-created money.

The BoE, which also left interest rates unchanged at a record low of 0.5% as expected, said the bond-buying would take another three months to complete and analysts said that would probably mark the end of the programme.

‘We suspect that this will be the final extension to the QE programme unless the economy suffers a major relapse in 2010,’ said Howard Archer, economist at IHS Global Insight.

While the BoE noted that numerous surveys had indicated that a pick-up in the economy was in sight, it still believed the prospect was for ‘a slow recovery in the level of economic activity.’

‘That will continue to bear down on inflation for some time to come, offset in the short run by the impact of the past depreciation of sterling,’ the BoE said in a statement.

Two-thirds of analysts polled by Reuters had predicted the central bank would expand its asset-buying scheme, but opinion had been split evenly on whether the increase would be £25 billion or £50 billion.

‘The Bank seems to be weaning the market off QE and we strongly suspect that, barring any further negative surprises to economic growth, this will be the last instalment of the programme,’ said George Buckley, economist at Deutsche Bank.

Britain’s economy remained mired in recession in the third quarter. The United States, Germany and France have already started growing again.

Bank Experts Fear ‘False Dawns’

(Press Association) – BANK OF ENGLAND RATE-SETTERS are fearful of ‘false dawns’ despite more positive signs for the struggling UK economy, it has been revealed.

The Bank’s Monetary Policy Committee (MPC) voted unanimously to keep interest rates at their 0.5% record low and continue with its £175 billion programme to boost the money supply at its meeting two weeks ago.

Although rising house prices and stock markets gave ‘promising indications,’ rate-setters are worried over an ‘uncertain’ recovery.

‘The lesson from previous financial crises was that they were not resolved quickly, and that there could be false dawns,’ minutes of the meeting said.

Bank Predicts CPI Below Target In 2 Years

(Reuters) – INFLATION WILL BE well below the 2% target in two years if interest rates rise in the first quarter, the Bank of England said today, suggesting markets are pricing in rate hikes too early.

In its quarterly Inflation Report, BoE projections showed CPI inflation at around 1.4% in two years’ time if rates follow the path implied by market expectations — rising to 0.7% in Q1 2010 and going up thereafter.

But assuming interest rates stay at a record low of 0.5% and the BoE reaches its £175 billion quantitative easing target, ‘the risks of inflation being above or below the 2% target at the two year horizon are broadly balanced, albeit that the path of inflation is rising.’

The latest forecasts are likely to raise expectations that the Bank will keep interest rates where they are for some time to come; or even have to further expand its quantitative easing programme to get the economy growing strongly again.

While the inflation profile was similar to that published in May, the outlook for growth was ‘somewhat stronger’ given the extra stimulus pencilled in.

The BoE charts show growth returning at the turn of the year and getting close to a rate of 3% in two years’ time.

‘The stimulus should lead to a slow recovery in economic activity, but the timing and strength of that recovery remains highly uncertain,’ the BoE said.

Bank Keeps Interest Rates On Hold

(BBC) – THE BANK OF ENGLAND has kept the cost of borrowing unchanged at 0.5% for the fourth month in a row.

It added it was not planning to extend its quantitative easing scheme, under which it creates money to buy bonds in order to stimulate the economy.

It will continue with its current plan to spend £125bn.

Some had expected it would increase that amount; but the move allows it to pause and assess economic data, observers said.

The Bank’s Monetary Policy Committee (MPC) could have increased its quantitative easing spending by an additional £25bn without asking the Treasury.

Pegging rates at 0.5% had been widely expected. Geoff Tresman, of Punter Southall Financial Management told the BBC that holding rates was inevitable as the economy ‘continued to navigate its way through the serious repercussions of the massive hike in borrowing and long term build up of public debt.

‘It may appear to many that green shoots are appearing and this may prove to be the case,’ he added.

‘But it is impossible to tell whether the dim light at the end of the tunnel is the way out — or an oncoming train.’

Earlier this week, the British Chambers of Commerce (BCC) business group said that the worst of the UK’s recession was over, but added that talk of a recovery was premature.

Latest official data showed the UK economy contracted by 2.4% in the first three months of the year, a decline not exceeded for 51 years.

… (10/07/2009) – Council Leaders Call For Local Approach To Recession