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UK Policymakers Opt To Retain QE At GBP 375 Bln

Oct 04 2012

The U.K. central bank refrained from raising quantitative easing as a slight economic improvement eased the pressure on policymakers to expand the ongoing stimulus at this stage.

The Monetary Policy Committee of the Bank of England headed by Governor Mervyn King retained the size of the quantitative easing programme at GBP 375 billion. The asset purchases, which was last initiated in July, will continue until early November.

The MPC said the scale of the programme will be kept under review. The bank is likely to expand the stimulus next month once they complete the ongoing GBP 50 billion augmentation.

The nine-member committee also maintained interest rates at 0.50 percent, the lowest level since the bank was established in 1694. The previous change in the rate was in early 2009.

A rate cut would help borrowers, but it will impact income of savers. Economists are foreseeing a rate cut in the fourth quarter.

IHS Global Insight's Chief U.K. economist Howard Archer expressed doubts about the BoE trimming rates to 0.25 percent, given suspicion within the MPC that such a move would have a net overall beneficial impact.

According to the latest Credit Conditions Survey by the bank, lenders predicted significant growth in secured credit availability over the fourth quarter on expectations that the Funding for Lending Scheme would lead to strength.

Inflation in the U.K. eased to 2.5 percent in August, but continues to remain sticky above the 2 percent target. Policymakers are currently more concerned about the risks from slowdown in economic activity than inflation.

Official data showed that the British economy contracted 0.4 percent in the second quarter, following a 0.3 percent GDP decline in the first quarter and 0.4 percent drop in the fourth quarter of 2011.

Many economists said the economy is set to have exited a recession in the third quarter. The official ONS assessment that the U.K. was in technical recession for three consecutive quarters is too gloomy, the British Chambers of Commerce said. The lobby expects a return to positive GDP growth in the third quarter.

David Kern, chief economist at the British Chambers of Commerce said an increase in QE at the present time would be risky and unwise. More easing should be considered only if tensions in the Eurozone pose new threats to the UK financial system, Kern added.

Policymaker Spencer Dale warned last month that sustained loose monetary policy could lead to increases in the risks and delay the rebalancing of the economy. The minutes of the MPC meeting to be released on October 17 will give idea about members' stance on policy.

The material has been provided by Instaforex Company -
TAGS: UK  Policymakers  Opt  To  Retain  QE  At  GBP  375  Bln   

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