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Bank of England Holds Fire Despite New Remit

The Bank of England
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The Bank of England

The Bank of England opted on Thursday not to pump new money into Britain's stagnant economy, despite a new remit that gives it clearer leeway to disregard above-target inflation.

The central bank said that it would not add to the 375 billion pounds of government bonds it purchased from March 2009 to October 2012, and that it would keep interest rates at a record low 0.5 percent.

As usual it made no further comment on its decision, and will not publish minutes of the nine-member Monetary Policy Committee's two-day meeting until April 17.

A large majority of economists polled by Reuters had expected the Bank of England to hold fire.

Its decision to sit tight contrasts with the Bank of Japan's surprise announcement earlier on Thursday that it will double its government bond holdings within two years.

Two weeks ago Britain's finance minister, George Osborne, tweaked the Bank of England's remit to give it clearer scope to overlook one-off upward pressures on inflation - something a handful of economists thought might break the past two months' deadlock on the Monetary Policy Committee.

But although BoE Governor Mervyn King and two other officials backed more asset purchases in February and March, there has been no sign that the other six MPC members who oppose this have shifted ground.

Inflation is above target at 2.8 percent and not forecast to fall below 2 percent until early 2016, and some BoE officials have also voiced concern that more stimulus could trigger an undesirable weakening in sterling.

Nevertheless, economists see a roughly 60 percent chance of more stimulus at some point this year due to a weak growth outlook and the risk that Britain may slip into its third recession in five years.

Further asset purchases could come as soon as May, when the central bank updates its quarterly economic forecasts, or when Mark Carney, the current governor of the Bank of Canada, succeeds King in July, triggering a broader review of the central bank's policy framework.


Contact Europe: Economy

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