Bank of England expected to keep City waiting

Bank of England expected to keep City waiting

The Bank of England is expected to keep the City waiting on much-anticipated measures to lift the economy out of the doldrums when it holds its latest interest rate meeting on Thursday.

Rates are expected to remain unchanged at their historic low of 0.5% while it is thought likely that the Bank will hold off on increasing its £375 billion quantitative easing (QE) programme of injecting money into the economy, at least for the time being.

But all eyes will be focused on whether the Bank’s Monetary Policy Committee (MPC), under new governor Mark Carney, will offer any clues about any further stimulus measures in the future – and what form these may take.

Policymakers at Threadneedle Street are discussing the possible use of “forward guidance”, a policy which has been favoured by the new governor.

They are not expected to announce their formal decision until August 7, so an MPC announcement this week that it is maintaining the status quo for now may be expected to offer little that is new.

But it is only the second such meeting under Mr Carney’s tenure and the City will be waiting to see whether the committee springs a surprise on them as it did after the first one, at the beginning of July.

On that occasion, Mr Carney made an impact just days into his new job when the MPC issued a rare statement alongside its interest rate decision to indicate that rates would not be rising from their current level for some time to come.

It said that the “the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy” – seen as a corrective to misplaced optimism over the imminence of a sustained recovery.

The statement, seen by some as an early taste of forward guidance, took the City unawares and sent the FTSE 100 Index soaring – a rally bolstered by similar reassurance on eurozone policy by European Central Bank head Mario Draghi on the same day.

It remains to be seen whether any such statement is issued by the Bank this week or not – though the prospect remains open that despite being expected to indicate no change, details of the announcement could yet provide an unexpected surprise.

Minutes of the last meeting showed that all nine members of the MPC voted to hold off from more QE.

Mr Carney, seen as a proponent of increasing stimulus, held off for the time being as did two other policymakers who had regularly voted alongside the previous governor Mervyn King to inject more cash into the economy – though they had repeatedly been defeated.

With an announcement on forward guidance to come, and figures showing 0.6% growth for the second quarter prompting hopes that a recovery is now on track, more QE is again thought unlikely this time.

However the last statement from the MPC suggested that it was less bullish than some about the economy – and it would already have factored in the expected GDP rise at that point.

Howard Archer, chief UK and European economist at IHS Global Insight, said: “The August meeting of the Bank of England’s Monetary Policy Committee is unlikely to see any change in monetary policy ahead of a highly probable decision to move to forward guidance on monetary policy a week later.”

However, Investec economist Victoria Clarke said that Mr Carney might not have any better opportunity to give “one final push” to QE, predicting a £50 billion addition to the stimulus.

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