LONDON Nov 8 The Bank of England is likely to
opt narrowly against another cash injection to support the
economy on Thursday despite a fragile recovery, as some
policymakers worry about inflation.
The central bank is due to announce its monthly policy
decision at 1200 GMT, and economists predict it will not top up
its 375 billion pound ($599 billion) programme of government
bond purchases and will also keep interest rates on hold.
Just three weeks ago, economists polled by Reuters saw a 60
percent chance of another round of quantitative easing being
unveiled this week.
But when they were asked the same question last week, in the
wake of data showing surprisingly strong British GDP growth for
the July-September period, that probability fell to 40 percent.
Several members of the Bank of England's Monetary Policy
Committee have also voiced concerns over inflation and doubts
about the continued effectiveness of its asset-buying programme
in boosting the economy.
Last month, Martin Weale said another round of QE might not
be "compatible" with the central bank's inflation target and BoE
chief economist Spencer Dale noted that inflation was sticky.
Inflation held above the bank's 2 percent target in
September, even before hefty price rises announced by four of
Britain's biggest energy suppliers kicked in.
The central bankers are pinning great hopes on their new
Funding for Lending Scheme to get credit flowing to households
and businesses, but it may take another few months for its
effects to show through.
Still, their decision on Thursday is expected to be very
close, as surveys show signs of renewed economic weakness.
"The odds look tilted marginally towards the Bank of England
holding off from more quantitative easing," said Howard Archer,
economist at IHS Global Insight.
But he added that he would not be surprised "if the MPC
compromised on a halfway house approach", and decided to spend
another 25 billion pounds on buying gilts rather than the more
usual 50 billion.
If the central bank holds fire as expected, it is unlikely
to release a statement and attention will turn to the quarterly
inflation and growth forecast updates in its Inflation Report,
which BoE Governor Mervyn King will present on Nov. 14.
Further out, more QE is on the cards, with economists
pointing to another 50 billion pounds' worth in the first three
months of next year to support the fledgling recovery.
Moreover, the euro zone debt crisis continues to dampen
demand for British exports and a deterioration in the area could
yet prompt the central bank to pump more cash into the economy.