LONDON (Reuters) - The Bank of England left its monetary policy unchanged on Thursday, deciding that February’s extra 50 billion pounds ($79 billion) of quantitative easing was enough for now to support the economy through a period of fitful recovery.
None of the economists polled by Reuters last week had expected the BoE to deviate from the latest three-month program of gilt purchases with new money, announced last month, and the debate is increasingly shifting to whether there will be more QE in May.
February’s meeting showed growing divisions on the Monetary Policy Committee, despite the majority vote to raise the QE total by 50 billion pounds to 325 billion. Two MPC members wanted a 75 billion pound increase, while others saw a case for no QE at all.
There was little market reaction to Thursday’s decision, and most economists now doubt that there will be further QE in May unless there is a sharp worsening in the euro zone debt crisis.
“We expect the BoE to refrain from further asset purchases and to shift into a wait-and-see mode ... based on our view that the economic recovery should have gained some traction by May,” said ABN Amro economist Joost Beaumont.
How the MPC’s debate panned out this month will become clear on March 21, when the BoE releases minutes of their two-day meeting. Finance minister George Osborne will present his 2012 budget, in which he is under pressure to find ways to boost sluggish growth, the same day.
However, Britain’s coalition government of Conservatives and Liberal Democrats cannot engage in any significant spending measures due to a commitment to largely eliminate the country’s hefty budget deficit before a national election in May 2015.
Part of Osborne’s plans involve ‘credit easing’ measures to boost the flow of lending to smaller firms.
BoE Governor Mervyn King has strongly resisted expanding the central bank’s remit beyond buying gilts and a token sum of corporate bonds, saying it is the job of government and commercial banks to make more fine-grained decisions about which sectors firms should get scarce credit.
The BoE has forecast a choppy recovery this year, with growth likely to be distorted by an extra public holiday to mark Queen Elizabeth’s Diamond Jubilee as well as an influx of tourists for the London Olympics.
Business activity surveys have softened slightly from January’s relatively strong readings, and oil prices have surged - a double-edged sword that may push up inflation in the short-term, but weaken medium-term growth.
With inflation still well above target at 3.6 percent, the record high just hit by British petrol prices may make more hawkish policymakers nervous about the central bank’s forecast that inflation will be below 2 percent by the end of the year.
March’s policy decision marks the third anniversary of the BoE’s decision at the depths of the financial crisis in 2009 to cut interest rates to a record-low 0.5 percent and start buying financial market assets with newly created money.
QE has generally enjoyed support from Britain’s politicians and public, though there have been concerns that it has hurt pensioners’ retirement income. Earlier on Thursday, the National Association of Pension Funds said the 125 billion pounds of QE sanctioned since October may have cost them 90 billion pounds.
Reporting by David Milliken, editing by Mike Peacock