BOE Seen Keeping Bond Buying on Hold on Concerns About Inflation

Bank of England officials will refrain from boosting their bond-buying program next week as above-target inflation overrides concerns the economy may slip into a triple-dip recession, economists said.

Governor Mervyn King and the Monetary Policy Committee will keep the quantitative-easing target at 375 billion pounds ($569 billion), according to 32 of 35 economists in a Bloomberg News survey. They will also leave the benchmark interest rate at a record-low 0.5 percent in a decision to be announced at noon on April 4, a separate survey showed.

King and two other policy makers were defeated for a second month in March in a push for more stimulus as the majority of the MPC said it might erode their credibility and push the pound lower. Still, the BOE may increase QE next month if data on April 25 show Britain slipped into its third slump in five years in the first quarter, according to Capital Economics Ltd.

“The latest economic data have probably not been weak enough to persuade anyone to switch sides,” said Capital Economics chief U.K. economist Vicky Redwood. “Nonetheless, a big negative” GDP figure “could well be enough to push some members into the governor’s camp.”

Minutes of the MPC’s March 6-7 meeting showed officials voted 6-3 to keep QE on hold. King, David Miles and Paul Fisher wanted a 25 billion-pound increase.

The MPC majority said that with price growth above their 2 percent goal, there was a risk that adding to stimulus “could lead to inflation expectations drifting upwards.” It might also cause an “unwarranted depreciation of sterling if it were misinterpreted as a lack of commitment to maintaining low inflation in the medium term.”

The currency’s weakness may stoke price pressures by boosting the cost of imports. Inflation accelerated to 2.8 percent in February, the 39th month it was above the goal.

“Their worries about inflation are not going to disappear soon, given that inflation will probably remain above its target for the rest of this year,” Redwood said.

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