LONDON (MNI) – The Bank of England Monetary Policy Committee
increased its programme of asset purchases by Stg50 billion at its
February meeting and noted indications from recent surveys that activity
is picking up.
At the same time, the statement said that economic growth in the
UK’s main export markets has slowed and that concerns over the euro area
are still lingering.
“Some recent business surveys have painted a more positive picture
and asset prices have risen. But the pace of expansion in the United
Kingdom’s main export markets has also slowed and concerns remain about
the indebtedness and competitiveness of some euro-area countries.
The statement goes on to point out that a recovery in output should
be helped by improved real disposable income levels as inflation falls
and by continued stimulus from its monetary policy.
“A gradual strengthening of output growth later this year should be
supported by a gentle recovery in household real incomes as inflation
falls, together with the continued stimulus from monetary policy. But
the drag from tight credit conditions and the fiscal consolidation
together present a headwind,” the statement says.
“The correspondingly weak outlook for near-term output growth means
that a significant margin of economic slack is likely to persist,” it
adds.
The vast majority of analysts had anticipated the Stg50 billion
hike in asset purchases. An MNI survey showed 25 out of 31 analysts
expected the BOE would add Stg50 billion to its stock of asset
purchases. Five had expected Stg75 billion and one no change.
The MPC statement goes on to note the sharp fall inflation to 4.2%
y/y in December and adds that it “should continue to fall sharply in the
near term, as the increase in VAT in January 2011 drops out of the
twelve-month comparison”.
National Statistics would have made available to the committee a
flash estimate of the January CPI number, due for release next Tuesday.
Analysts expect last month’s CPI to show a fall to around 3.5%.
The statement says “Inflation is then likely to decline further as
the contribution of energy and import prices diminishes, while downward
pressure from unemployment and spare capacity continues to restrain
domestically generated inflation”.
The statement then makes clear that the latest QE announcement is
warranted by the results of its latest forecasting round, saying that
without this latest stimulus inflation would have been likely to fall
below target in the medium term.
“In the light of its most recent economic projections, the
Committee judged that the weak near-term growth outlook and associated
downward pressure from economic slack meant that, without further
monetary stimulus, it was more likely than not that inflation would
undershoot the 2% target in the medium term.”
The new Stg50 billion programme will ease the pace of weekly Gilt
purchases to 3 reverse auctions a week of Stg1.5 billion each. The
previous Stg75 billion programme employment 3 auctions a week of Stg1.7
billion each.
–London newsroom: 4420 7862 7492 email: ukeditorial@marketnews.com
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