The Bank of England will probably halt its stimulus program next week as the Monetary Policy Committee assesses whether the economy can maintain growth after escaping from a recession.
The nine-member MPC will probably leave the target for asset purchases at 375 billion pounds ($602 billion), according to 35 of 45 economists in a Bloomberg News survey. Seven forecast a 50 billion-pound increase in quantitative easing, and three expect a 25 billion-pound expansion.
The economy grew 1 percent in the third quarter and the MPC is gauging the ability of its Funding for Lending Scheme to ease credit strains and sustain growth. Royal Bank of Scotland Group Plc and Investec Securities are among banks that have abandoned forecasts for more QE in the past month after policy makers indicated a reluctance to expand stimulus again.
It’s “more likely than not that the Bank of England will hold off,” Howard Archer, an economist at IHS Global Insight in London, said in a note. Still, “with the recovery looking fragile and weak overall,” more QE could be implemented in early 2013, he said.
While the economy emerged from recession in the third quarter, recent data have been mixed. Reports this week showed that a slump in manufacturing deepened in October and construction unexpectedly returned to growth.
The Confederation of British Industry, the U.K.’s biggest business lobby, raised its growth forecasts on Nov. 1, while noting that the outlook remains “challenging.” It sees the economy stagnating this year and expanding 1.4 percent in 2013.
After the third-quarter rebound, Bank of England Chief Economist Spencer Dale said there may be a “sharp fall back” in fourth-quarter gross domestic product. He also predicted a “period of relatively weak growth over the next couple of years.”
BOE Deputy Governor Charles Bean said this week that consumers’ and businesses’ concerns on the economic outlook may undermine the impact of QE. People are less likely to be lured by low borrowing costs and bring forward spending “when uncertainty is elevated and when banks and some households are concentrating on repairing their balance sheets,” he said.
Former central bank official Charles Goodhart said in an interview yesterday that the FLS, which started on Aug. 1 and aims to give banks access to cheap funding in return for boosting credit, may be “potentially quite successful.”
All 55 economists in a separate Bloomberg survey say the MPC will leave its benchmark interest rate at a record low of 0.5 percent. The bank will announce its decision at noon in London on Nov. 8.