RTTNews - Thursday, the Monetary Policy Committee of the Bank of England is widely expected to hold the key rate at a record low and to decide upon further quantitative easing measures. Economists stand divided regarding the central bank's next move on QE.
While, some economists hold the view that the BoE would raise the size of the asset purchase scheme by GBP 25 billion to the authorized GBP 150 billion, others expect the central bank to pause on its QE measures as the economic indicators are showing signs of improvement.
Thus far, the bank has utilized GBP 125 billion for asset purchases. The central bank had started buying assets using its reserves in March. Policymakers would possibly assess the effectiveness of unconventional measures already implemented.
The British Chambers of Commerce urged the BoE to utilize the full GBP 150 billion already allocated to the asset purchase programme. Further, the business lobby said BoE Governor Mervyn King should raise the ceiling of the QE programme by another GBP 30 billion to GBP 180 billion with the permission of Chancellor.
In July, all nine members of the MPC had unanimously decided to continue with its quantitative easing measures worth GBP 125 billion and also stood united in retaining the Bank Rate at 0.5%. In the MPC meeting held on July 8 and 9, BoE said it would review the scale of the program again at its August meeting, alongside its latest inflation projections.
During a week-long tour of the UK in July to explain the asset purchase scheme of the central bank, deputy governor Charles Bean said there remains obvious uncertainties linked to the GBP 125 billion scheme and it will take at least nine months for its effect to be fully felt.
He had dismissed speculation that the central bank is set to end the asset purchase scheme. Bean also said the governor could write to the chancellor Alistair Darling saying the MPC would like to do more than the authorized GBP 150 billion worth of asset purchases. It would be up to the chancellor whether he was happy to do that, he said.
On July 30, BoE said it is planning to buy asset-backed commercial paper to help improve the function of the private market. Through its Secured Commercial Paper Facility, the bank will purchase commercial paper securities directly from firms and also from other investors during a defined period each business day.
The economy started to show positive signs with growth in manufacturing output and improvement in economic activity as measured by the Purchasing Managers' Index.
According to official data, economic contraction in the second quarter was 0.8%, which was much slower than the 2.4% decline in the first quarter of 2009. The National Institute of Economic and Social Research, a private think-tank, today said the British economy shrank 0.4% in three months to July.
Also, annual inflation in June had dropped below the central bank's 2% target for the first time since September 2007. Inflation eased to 1.8% in June from 2.2% in May.
With regard to the housing market, the BoE data itself showed that the number of mortgage approvals for house purchase rose to their highest level in more than a year in June with approvals totaling 47,584. Further, survey results of Halifax and the Nationwide Building Society found house prices rising in July. The Halifax house price index rose 1.1% month-on-month in July, while that from Nationwide reported 1.3% increase.
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