The Bank of England stuck to its current policy of government bond purchases on Thursday as Britain’s recession appears to be easing and hopes are running high for a sweeping move by the European Central Bank to ease the euro zone crisis.
Since the BoE’s August meeting, a rebound in closely watched business surveys has fed hopes that the economy is crawling out of recession after three quarters of contraction, though the road to a proper recovery still looks bumpy.
After the two-day meeting that ended earlier on Thursday, the Monetary Policy Committee made no change to its current plan to buy £50-billion ($80-billion U.S.) of British government bonds, which will take its total purchases to £375-billion by November.
The central bank also left its interest rate unchanged at the record low of 0.5 per cent, in line with a Reuters poll of economists, who had all bet on an unchanged policy.
However, most expect the Bank to start another round of quantitative easing once the current round is completed in November to support an economy that has not fully recovered from the 2008-2009 slump and has been back in recession since late last year.
Attention will now turn to the European Central Bank’s interest rate decision. ECB chief Mario Draghi is expected to announce the framework for a new bond-buying plan aimed at bringing Spain’s and Italy’s borrowing costs down.
The crisis in Britain’s main export market has hurt demand and sapped businesses’ confidence to invest, throwing up more hurdles to growth as the government pushes on with a tough austerity plan to erase a huge budget deficit.
The central bank and most other economists see a tepid recovery as inflation falls back towards its 2 per cent target.
But the debate among Bank of England’s policymakers about the right amount and form of future stimulus may have been equally lively at the September meeting even after the departure of arch-dove Adam Posen.
Thursday’s decision was the first for new rate-setter Ian McCafferty, who joins the nine-member Monetary Policy Committee from the Confederation of British Industry.
But the market may have to wait until the minutes of the latest meeting are published on Sept. 19 to find out how Mr. McCafferty’s arrival has influenced the discussion.