BOE to Keep Bond-Buying Plan on Hold Amid Split, Economis
Bank of England policy makers will maintain the size of their bond-buying program next week amid a split over whether the economy needs more stimulus, economists forecast.
The nine-member Monetary Policy Committee led by Governor Mervyn King will hold the target at 325 billion pounds ($521 billion) on April 5, according to all 39 economists in a Bloomberg News survey. They will also leave their key interest rate at a record low of 0.5 percent, said all 53 economists in a separate poll.
Divisions have emerged as a surge in oil prices threatens to stoke an inflation rate now in its third year above target while Europe’s debt turmoil hurts demand. Adam Posen and David Miles kept up their push for more stimulus this month after officials voted to increase the asset-purchase ceiling by 50 billion pounds in February. The majority favored waiting to monitor the risks to the outlook. The current round of purchases is due to end in May.
“The Bank of England is clearly very much in ‘wait-and- see’ mode,” said Howard Archer, chief U.K. and European economist at IHS Global Insight in London. “On both the growth and inflation fronts there is considerable uncertainty at the moment. It is very possible that unchanged monetary policy will be the name of the game for the rest of 2012 and some considerable time beyond.”
Posen and Miles, who favoured a larger dose of stimulus than their colleagues in February, sought to increase asset purchases by 25 billion pounds to 350 billion pounds this month, according to the minutes of the March 7-8 meeting. The remaining MPC members voted to keep the target unchanged. They were unanimous on keeping their benchmark interest rate unchanged.
While policy makers highlighted upside risks to inflation from rising oil prices and wage settlements in the minutes, they also said there were “significant risks to economic activity that might result in inflation falling materially below” their 2 percent target in the medium term. Consumer-price gains slowed to a 15-month low of 3.4 percent in February from a peak of 5.2 percent in September and the central bank has projected the rate will fall to its target this year.
Government data this week showed the U.K. economy shrank more than previously estimated in the fourth quarter. Real household disposable income fell 1.2 percent last year, the biggest drop since 1977.
Still, policy maker Martin Weale has said there may be “more persistence” to inflation, while Bank of England Chief Economist Spencer Dale said on March 20 that it may not slow as fast this year as forecast due to rising energy costs. Brent crude oil has risen 20 percent in the past six months.
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