BOE Seen Keeping Quantitative Easing on Hold on Recovery
The Bank of England will keep its target for asset purchases unchanged next week after industry reports that are forecast to point to an improving economic recovery, according to surveys of economists.
The nine-member Monetary Policy Committee led by Governor Mervyn King will keep quantitative easing at 375 billion pounds ($569 billion), according to the median of 43 economists in a Bloomberg News poll. The MPC will also keep its benchmark interest rate at a record-low 0.5 percent, another survey shows.
The meeting will be King’s last before he retires and hands over to Bank of Canada Governor Mark Carney on July 1. With inflation above the BOE’s target, King has been defeated for the past four months in a bid to expand QE as the MPC majority cautioned against the danger of stoking price expectations.
“It would seem strange if the committee were to embark on a radical departure from its current course just ahead of Mark Carney taking over the helm,” said Philip Shaw, an economist at Investec in London. “Hence any change in the policy stance this time seems improbable.”
A report on June 3 may show that manufacturing returned to growth this month. An index by Markit Economics and the Chartered Institute of Purchasing and Supply rose to 50.3 from 49.8 in April, according to the median of 33 estimates in a survey. A reading above 50 indicates expansion.
Services growth probably accelerated this month, according to another survey of economists before a report on June 5. The MPC will announce its decisions at noon the following day.
While there is “some encouraging news,” the recovery is “far from convincing,” said Howard Archer, an economist at IHS Global Insight in London, adding that more stimulus is likely later in the year. “It seems more likely to come as a welcoming present sometime in the third quarter for incoming Governor Mark Carney than as a parting gift for Mervyn King.”
The British Chambers of Commerce raised its economic forecasts through 2015 today, and separate data showed consumer confidence increased to a six-month high this month. Still, unemployment rose in the first quarter and retail sales fell the most in 16 months in May. Weakness in credit has led the government and the central bank to broaden their Funding for Lending Scheme to encourage lending. New data on the impact of the program will be published on June 3.
“Where policy goes from here depends not just on the path of the economic data, but also on whether Dr. Carney encourages a more activist approach,” said Shaw. “The risk of another false start suggests he may do what he can to ensure that the upturn is sustained, probably in the form of restarting quantitative easing and issuing forward guidance on rates.”
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