Bank of England Leaves Rates and QE on Hold

The Bank of England’s monetary policy committee voted on November 4 to maintain its key rate at the 0.5 per cent level and to keep its £200bn programme of quantitative easing through gilt purchases on hold.

The decision was widely expected after a flurry of recent data suggested that Britain’s economy was more robust than had been thought earlier. The nation’s output in the three months to the end of September grew at a healthy 0.8 per cent pace while recent surveys of purchasing managers for the manufacturing and services sectors have been relatively upbeat.

At last month’s meeting, only one member, Adam Posen, voted to increase QE. He suggested that a further purchase of £50bn in bonds was needed. However, another member, Andrew Sentance, drew the opposite conclusion from recent economic data and voted to raise interest rates by 0.25 percentage points to signal the MPC’s determination to fight inflation.

Britain, unlike the US, where the Federal Reserve has just unveiled plans to purchase a further $600bn in government bonds, is experiencing inflation well above target at 3.1 per cent. In addition, strong rises in food and textile commodity prices have prompted warnings from retailers that these are likely to be reflected in retail prices in the months ahead.

A decision to increase QE would raise questions about the MPC’s determination to get tough on inflation unless there was overwhelming evidence that economic activity was flagging badly, economists noted.

Bank of England Leaves Rates and QE on Hold, FT
11/4/2010 12:26:52 PM