Economists: Bank of England likely to hold fire on QE

Economists have predicted that the Bank of England will hold off on announcing any more government bond buying tomorrow, following a series of recent positive data reports.

The Bank’s rate-setting monetary policy committee is set to reveal tomorrow whether it will change interest rates above their longstanding low at 0.5 per cent or carry out further monetary easing under the quantitative easing (QE) programme.

The QE programme currently stands at £375bn of government bonds purchased.

Article continues after advert

Unemployment levels and manufacturing PMI data in the last month were both positive, although services PMI showed a shock contraction that indicated we could be heading for a triple-dip recession.

Simon Ward, economist at Henderson, said: “I would be very surprised if there was more QE tomorrow. Over the last month economic news has been mixed, including a positive chambers of commerce survey, and inflation is above target too.”

Nick Beecroft, senior analyst at Saxo Capital Markets, said that promising global factors also made further QE less likely:

“On the international front, the eurozone crisis seems to be contained and the US fiscal cliff negotiations brought at least temporary relief.

“Given this backdrop, there seems to be little reason not to ‘keep the powder dry’.”

However, Vicky Redwood, chief UK economist at Capital Economics said that the Bank would be unlikely to hold off on the asset purchase programme for long.

“The renewed pick-up in inflation and the tentative success of the Funding for Lending Scheme (FLS) mean that more quantitative easing (QE) does not look imminent,” she said.

“But if the economic stagnation continues as we expect, more asset purchases still look likely this year.”