MPC steadied by string of positive data
CAUTIOUS optimism is likely to dominate the Bank of England’s Monetary Policy Committee (MPC) June minutes due out this Wednesday, in the light of the last fortnight’s string of positive data.
Key MPC members including Kate Barker and Paul Fisher have already expressed concerns about the strength and sustainability of the UK’s nascent economic recovery, and have said that interest rates will remain low for some time to come.
The last set of minutes also contained plenty of signals that quantitative easing (QE) could be extended further in time and this report could well do the same, says Jonathan Loynes at Capital Economics.
The MPC has already announced £125bn worth of QE out of the £150bn the Treasury has authorised, and has completed £86bn worth of asset purchases. But the nine members will be under pressure to think about using up at least the remaining £25bn to ensure that the economic recovery is sustainable.
George Buckley, UK economist at Deutsche Bank, says: “If the MPC was going to continue it’d need to do it soon, but I don’t think it would be willing to renegotiate the amount with the Chancellor.”
Ian McCafferty, chief economic adviser at the Confederation of British Industry (CBI), says that QE will have to continue for some months yet but by spring next year the Bank of England will want to return monetary policy to more normal footing. He adds that there may well be a good justification for extending QE a little further come the autumn.
But Citigroup’s Michael Saunders says: “With improving economic prospects, strengthening financial conditions and upside risks to inflation in 2010, the MPC probably will not want to expand QE much, if at all, further once the current £125bn programme is complete.”