Bank of England policymakers voted on Thursday to leave its target for asset purchases steady at 275 billion pounds and to keep interest rates at a record low of 0.5 percent.

Most analysts expect the Bank to inject more stimulus into the economy early next year to try to restore growth at a time of serious threats from the euro zone sovereign debt crisis.

Following are reactions to the central bank's decision at its December policy meeting.


Certainly there is a risk that the Bank opts to add to the programme at the next meeting but we believe it is more likely they wait until February. At that point we expect a minimum of 50 billion pounds to be agreed (the risks are rising for 75 billion) to take us through to the next Inflation Report MPC meeting in May.

Even then we cannot rule out further purchases in the event that the recession expected in the euro area has a more sizable impact on the UK than our current forecasts show.


We continue to believe the Committee will vote for another 75 billion pounds of QE in February. There is some residual risk that they could go for more QE in January should market tensions escalate and the MPC considered some immediate monetary policy signal would be useful. In either case, we do not believe that even the next announcement will be the last extension to QE. Our own forecasts imply the level of GDP will be lower over the next year than even the Committee's view in the November Inflation Report. That is sufficient to see a further 50 billion pounds in asset purchases in May.


The Bank of England is concerned that a faster flow of QE might be operationally difficult thanks to technical issues in the gilt market, and Mervyn King seems to consider such a move to represent excessive fine-tuning.

This should leave next month's meeting similarly in the shadows, with market attention focusing on February, coinciding with the completion of the current round of asset purchases and the next Quarterly Inflation Report. In our view the MPC will raise its target for asset purchases at this stage by another 50 billion pounds to 325 billion, implying a slower pace of gilt buying of some 3.8 billion pounds per week.

As things stand a subsequent round of QE is likelier than not, resulting in a further 50 billion being sanctioned in May, pushing the target up to 375 billion pounds. As inflation comes down sharply the MPC will be able to throw what it can at the economy in order to get growth moving again.


Despite the very real and growing risk that the UK economy is headed back toward recession and could well contract in the fourth quarter, the Bank of England had clearly indicated that it considered it best to hold fire on more QE at this stage.

This view was based on the fact that October's 75 billion pound extension of QE is not due to be completed until early-February, as well as concern within the MPC that the markets may have difficulty coping with more QE at this stage.

Holding back on more QE until early 2012 also gives the MPC more time to judge whether inflationary pressures are easing which some committee members believe is important for the Bank of England's credibility before it goes further down the QE road.


The latest minutes gave a very clear signal that although the Bank's projections warranted further policy accommodation, in practical terms it was difficult to accelerate the pace of purchases.

Hence it is steady as she goes until February's meeting. At that point our view (and that of the consensus) is that the committee will announce another 75 billion pounds of asset purchases.


With the Bank's current round of asset purchases likely to run into early next year, this decision to keep monetary policy on hold is in line with our expectations.

Developments in the euro zone remain the key risk to the UK's economic prospects. While there are encouraging signs that progress will be made at this week's summit, it's clear that the situation is at a critical juncture.


While the economic outlook isn't getting any better the MPC was unlikely to change tack for now from its current asset purchase extension.

But, with downside risks to growth mounting in 2012, a further boost of QE in the new year is still firmly on the table.

(Reporting by UK economics)