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UPDATE 2-Bank of England holds fire as policymakers await Carney
May 9, 2013 / 12:02 PM / 5 years ago

UPDATE 2-Bank of England holds fire as policymakers await Carney

* BoE leaves asset purchases at 375 bln stg, rates at 0.5 pct

* UK industrial output data points towards gradual recovery

* No change expected until Carney arrives in July

* UK industrial output graphic:

By David Milliken

LONDON, May 9 (Reuters) - The Bank of England decided against pumping more stimulus into Britain’s fragile economy on Thursday, as policymakers await the arrival of new governor Mark Carney amid signs that a slow recovery may be taking hold.

The central bank made no statement alongside its widely- expected decision not to add to the 375 billion pounds of government bonds which it bought with newly-created money between March 2009 and October 2012.

It also left interest rates at their record low 0.5 percent, not taking the same path as the European Central Bank, which cut rates last week for the first time in 10 months.

The decision came hours after March industrial output data showed a stronger-than-expected rise in factory output and bolstered confidence in an initial estimate that the economy as a whole grew 0.3 percent in the first three months of 2013.

“Given first quarter GDP came in above the bank’s forecast, we expected the Monetary Policy Committee to keep the policy stance unchanged this month,” said Stephen Gifford, director of economics at the Confederation of British Industry.

“Barring any nasty surprises, the MPC is likely to remain on hold until ... Carney’s arrival in July,” he added.

Carney currently heads Canada’s central bank. May’s MPC meeting marked the penultimate policy decision for the Bank of England’s current governor, Mervyn King, who since February has advocated an expansion of asset purchases.

Just a few weeks ago, many economists polled by Reuters expected he would win over the majority of the nine-strong MPC in May and restart the central bank’s bond-buying programme after a six-month hiatus.


But since then, official data has shown that Britain’s economy grew by a stronger-than-expected 0.3 percent in the first three months of 2013, and other surveys point to a solid start to the second quarter.

Moreover, the central bank has also expanded its Funding for Lending Scheme to give banks more incentive to lend to small businesses - an approach some policymakers believe is preferable to the less-targeted policy of quantitative easing, or buying government bonds with newly-created money.

Only three out of 63 economists polled by Reuters last week expected a restart to asset purchases in May, though those polled saw a 55 percent chance that the Bank of England will restart its asset purchase programme later this year.

After the ECB cut rates last week, it said more stimulus may be on the way, as the strength of the global economy is uncertain and much of southern Europe remains in a deep slump.

However, while King and two other policymakers have backed more asset purchases in recent months, the other officials on the MPC have been concerned that inflation - now 2.8 percent - is not falling enough to allow more stimulus.

At this month’s meeting, the MPC had access to new quarterly economic forecasts, which many economists think will predict a slightly faster fall for inflation than before.

The bank will publish these forecasts next Wednesday, and King will then give his final news conference to explain the economic outlook.

Where Carney stands in the debate on stimulus is unclear. He has favoured giving detailed guidance on the direction of policy, backed up by metrics other than a simple inflation target - an approach that finance minister George Osborne has encouraged him to investigate at the Bank of England.

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