Bank of England to sit tight on policy

Published Apr 5, 2012

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The Bank of England is set to leave its policy settings on hold on Thursday as growing evidence of a modest economic recovery reduces the need for extra monetary stimulus.

The central bank will announce its policy decision at 13:00 SA time.

All 56 economists polled by Reuters last week said they expected the BoE to leave interest rates and the target for its asset purchases unchanged, after it decided in February to buy 50 billion pounds ($80 billion) more of gilts.

Most economists also took the view that the BoE will not expand its quantitative easing programme this year.

Recent signs that the economy will avoid a recession coupled with worries about potentially sticky inflation support that view.

Surveys of purchasing managers released this week showed a surprise pick-up in growth across British services, manufacturing and construction in March.

“If these strong results can be sustained into April, then it is likely to be the final nail in the coffin for another round of quantitative easing,” said Andrew Goodwin, senior economic adviser to the Ernst & Young ITEM Club.

Moreover, a recent rise in oil prices has raised fears that British inflation will not fall towards the BoE's 2 percent target as fast as policymakers hope.

The British Retail Consortium said on Wednesday that food prices rose in March at the sharpest annual rate since June, driven by higher transport costs stemming from dearer oil.

A sizeable minority of economists still expect more stimulus from the BoE but not until May at the earliest, when its current asset buys are completed.

By then rate-setters will have also seen the first reading of Britain's first-quarter GDP and updated their growth and inflation forecasts.

Howard Archer, economist at IHS Global Insight, is one of those predicting a final 25 billion pound dose of QE.

“However, we now think it is more likely to be delayed until the third quarter rather than occur in May, given the recent overall improved economic news,” he said on Wednesday. - Reuters

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