The BoE appears ready to stop its asset- buying plan on Thursday, in spite of the e Bank of the economy having gone back into recession and more fresh risks caused by Euro debt crisis, while inflation in the UK remains stubbornly up.
bank of England, London, UK’s economic news, Uk economy, England economy
Doing away with its quantitative easing program expected to weigh heavily on Britain’s Conservative that led the ruling coalition. The conservative suffered a huge loss in the last local elections and it relies heavily on loose financial policy to ease the pain caused by austerity measures that are meant to slash the country’s massive public borrowing.
The bank is expected to halt its asset buying policy since it has already managed to purchase 325 billion pounds worth of government debt with the freshly created money, of which, 50 billion has already been bought in the past 3 months. It feels that its policy has provided enough support.
The bank’s policymakers including the deputy Governor, Paul Tucker have noted that inflation is not going to drop as quickly as it had been predicted beneath the bank’s 2% target since it climbed in March closing at 3.5%, making it the highest rate among the seven major economies.
It is only 5 out of the 58 financial analysts interviewed by the Reuters anticipate an announcement by the Central Bank for further asset purchase in the next publication of its decision at 1100 GMT.
Minutes of the last MPC meeting in April indicated that price increase continues to frighten the market, with QE long-time advocate Adam Posen dropping his proposal for more quantitative easing.
The bank’s governor Mervyn King says that it is now clear that the economy will recover slowly and sustainably by the end of this year, as inflation remains up.
What is more, Thursday’s decision is seen by many as a call for a halt.
Simon Hayes, a Barclay’s economist says that if the Monetary Policy Committee wishes to extend QE, it is justified to do so
Britain’s economy contracted 0.2%, in the last three months, pulling the country back into recession. However, earlier upbeat business analysis had indicated some growth. There is also the revival of Euro zone crisis especially by the tumult in Greece.
Hayes adds that there has not been a 2% inflation target in 2 years. He also notes that asset buying might have a very insignificant impact on the sluggish demand or reducing the effects of Euro zone crisis.