Feb. 7 (Bloomberg) -- The Bank of England refrained from adding to stimulus as policy makers kept focus on a credit-boosting program to aid the recovery.
The Monetary Policy Committee led by Governor Mervyn King said the target for its bond purchases will remain at 375 billion pounds ($589 billion). All 43 economists in a Bloomberg News survey forecast no change. The BOE also said it will reinvest proceeds of 6.6 billion pounds from gilts it holds that mature next month. The bank also said that inflation will exceed the 2 percent target for the next two years.
Today’s decision came as Bank of Canada Governor Mark Carney, who will succeed King in July, testified to U.K. lawmakers on matters ranging from his thoughts on inflation targeting to the size of his pay. While Britain’s economy shrank in the fourth quarter, tipping it toward an unprecedented triple-dip recession, surveys in January suggest it might be spared as both manufacturing and services showed expansion.
“The economy shrinking is bad news, but that being said, the bank had signalled that they were expecting a bad number,” said Rob Wood, an economist at Berenberg Bank in London and a former Bank of England official. “We’re likely to get a few months of inactivity.”
The MPC also kept its benchmark interest rate at a record-low 0.5 percent today, as predicted by all 54 economists in another Bloomberg survey. Officials are monitoring the impact of their Funding for Lending Scheme, which started in August and is aimed at boosting credit. There are signs the program is helping the mortgage market, and King said on Jan. 22 that lending conditions should improve further as it “kicks in.”
Policy makers will have considered recent mixed signals on the economy as well as quarterly forecasts produced for this month’s decision. Data today showed manufacturing output rose 1.6 percent in December from the previous month, twice as much as the median forecast in a Bloomberg News survey. Total industrial production increased 1.1 percent.
The National Institute of Economic and Social Research cut its 2013 growth forecast to 0.7 percent from 1.1 percent this week and said the economy is at risk of a prolonged stagnation. The Organisation for Economic Cooperation and Development said yesterday that Britain faces a “slow and uneven” recovery.
ARM Holdings Plc, whose chip designs power Apple Inc.’s iPhone, reported fourth-quarter sales this week exceeding analyst forecasts as demand surged. Still, “the global macro-economic environment continues to be characterised by uncertainty and the prospect of low growth.” Supergroup Plc, the U.K. owner of the Superdry fashion chain, said today that trading conditions “remain volatile and unpredictable.”
As the MPC deliberated today, Carney took questions from Parliament’s 13-member cross-party Treasury Committee. He said that central banks should be flexible in meeting inflation targets and that any change to monetary regimes should not be made lightly.
The former Goldman Sachs Group Inc. managing director has discussed the merits of a nominal gross domestic product target and said last month that policy in developed countries isn’t “maxed out.”
Carney will take over the BOE as it absorbs new regulatory powers over banks. The central bank is also under pressure to beef up governance by its supervisory board and change a culture where King has been criticised for dominating thinking.
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