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UPDATE 1-Bank of England puts QE differences on hold at first Carney meeting
July 17, 2013 / 9:17 AM / in 4 years

UPDATE 1-Bank of England puts QE differences on hold at first Carney meeting

By David Milliken and William Schomberg

LONDON, July 17 (Reuters) - Bank of England Governor Mark Carney and fellow policymakers voted unanimously against more bond purchases earlier this month, surprisingly setting aside their differences ahead of a review on giving guidance about future interest rates.

British government bond prices slid and the pound rallied following release on Wednesday’s of the minutes of the bank’s July 3-4 meeting, the first under Carney and the first to show no support for more quantitative easing bond purchases since last October.

Those policymakers who had previously supported buying more bonds said that although more help for the economy was warranted, it made sense to hold fire until the central bank had decided whether to provide clearer guidance on future interest rates - itself a form of stimulus.

“An expansion of the asset purchase programme remained one means of injecting stimulus, but the committee would be investigating other options during the month, and it was therefore sensible not to initiate an expansion at this meeting,” said those policymakers who would otherwise have backed more asset purchases.

Finance minister George Osborne, who picked Carney late last year to head the BoE, has asked him to report back by early August on giving interest rate guidance, an alternative means of boosting the economy.

In the minutes, the Monetary Policy Committee said it would give its main response with its Aug. 7 inflation forecasts, not the Aug. 1 policy decision.

“It’s pretty clear that there’s a lot going on in August, with the work on forward guidance and the Inflation Report, which suggests that it’s really next month’s meeting which is going to be critical,” said Investec economist Philip Shaw.

The central bank said there had been further signs that a recovery was in train but that it remained weak, in line with its May forecast for 0.5 percent growth in the second quarter of the year.

Data on Wednesday showed that the number of Britons claiming unemployment benefit fell in June at its fastest rate for three years in the latest sign that Britain’s economic recovery is gaining momentum, though the overall jobless rate held at 7.8 percent.

In previous months, BoE markets director Paul Fisher and external MPC member David Miles, along with former governor Mervyn King, had backed an extra 25 billion pounds ($37.8 billion) of asset purchases on top of an existing 375 billion pounds of purchases.

Other MPC members’ views appeared little changed over the month, with some again expressing doubts about the effectiveness of more bond purchases, even if the economy did need more stimulus now.

Carney is expected to shake up the central bank and give longer-term guidance on future interest rates, something he did while in charge of the Bank of Canada in 2009 and which burnished his reputation for bold thinking.

The BoE took a surprisingly rapid step towards more detailed guidance at its July policy meeting, when it said markets were wrong to bring forward expectations of when British interest rates might go up, given the weak state of the economy.

Policymakers have been immersed in deeper discussions on whether the BoE should use so-called “intermediate thresholds” - linking future monetary policy moves to economic indicators other than inflation.

Last week, Osborne told reporters that clearer guidance by the BoE on monetary policy would help households make better financial decisions and that economies across the world still needed support from what he terms “monetary activism”.

Those forecasts included one for economic growth of 0.5 percent in the second quarter, a slight increase from 0.3 percent in the first three months of the year

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