ANALYST VIEWS: WHEN MIGHT THE MPC START TO TIGHTEN POLICY?
HOWARD ARCHER IHS GLOBAL INSIGHTWe suspect that divisions will remain within the MPC on whether or not to extend QE, and to what extent. While we do not expect any change in QE this month, we certainly would not rule out an eventual further extension. What is much clearer is that interest rates will remain at 0.5 per cent for some considerable time to come.
SIMON WARD HENDERSON NEW STAR
If the economy evolves in line with the projections in the August Inflation Report, there will be no justification for continuing gilt-buying and by early 2010 the Committee will be under pressure to start withdrawing monetary stimulus. With economic recovery at an early stage and unemployment possibly still rising, any such action would be controversial.
PHILIP SHAW INVESTEC
If the economy were to evolve as the MPC expected, it would be easy to justify a tightening in a few months’ time. Continued downside risks to economy suggest that this is very unlikely to happen this year. However it helps to justify our wariness that rates may begin to rise again in the first quarter of next year, perhaps accompanied by some scaling back of QE.