London (AFP) – Bank of England is expected at its meeting starting Wednesday to refrain from pumping more cash into the British economy, despite news that it remained stuck in recession during the second quarter, economists said.
At its two-day get-together, the central bank’s Monetary Policy Committee is also forecast to maintain its key lending rate at a record low 0.50 percent, where it has stood since March 2009.
All nine MPC members voted last month to keep interest rates at 0.50 percent and continue with its quantitative easing (QE) programme worth £375 billion ($584 billion, 476 billion euros).
However, minutes from the meeting revealed the QE decision was “finely balanced” for some policymakers, amid Britain’s worsening recession and ongoing fallout from the eurozone debt crisis.
Most economists expect more QE cash this year — but the BoE is likely to wait until its most recent cash injection of £50 billion, announced in July, is completed in November.
“With the £50 billion of extra asset purchases announced in July still underway, there is no immediate pressure on the MPC to do more this month,” said Capital Economics analyst Vicky Redwood.
“Nonetheless, the increasing sense of gloom about the UK’s dismal economic performance has increased pressure on policymakers to do more to boost growth.
“We still expect more quantitative easing (QE) and an interest rate cut to be announced in November.”
Under QE, central banks create new cash to purchase assets, such as government and corporate bonds, with the aim of stimulating lending and economic activity.
Meanwhile, annual consumer price inflation spiked to 2.6 percent in July but the central bank predicts it will fall towards the target level by the end of the year. The BoE is tasked with keeping annual inflation close to a government-set target of 2.0-percent.
“Over the past month the outlook hasn’t shifted drastically, but inflation risks do appear to have nudged up,” noted Investec Securities economist Victoria Clarke.
“Even so we continue to see the committee backing more asset purchases in November when the current target of £375 billion is reached.”
In addition, BoE governor Mervyn King wants to allow more time to assess the impact of the government’s £80-billion “Funding for Lending” scheme which began in the summer and seeks to unblock credit flows to households and businesses.
“The bank looks to be in the early stages of weighing-up the impact of its Funding for Lending scheme, with its assessment likely to play into its decision on whether to back further QE this autumn. No conclusion is expected at the September meeting,” added Clarke.
Recent data showed that British gross domestic product (GDP) shrank 0.5 percent between April and June compared with the first quarter.
But the economy was already in recession after posting two successive negative quarters since late 2011. It shrank by 0.4 percent in the fourth quarter of last year and by 0.3 percent in the first quarter of 2012.
