Uncertainty will see QEand rates held
QUANTITATIVE EASING (QE) and interest rates should both be kept on hold this month, according to a majority of Morning Wire’s shadow monetary policy committee (MPC) ahead of the Bank of England’s decision due at midday today.
While seven members voted for no change, Henderson New Star’s Simon Ward, who advocates suspending QE, argues that asset price strength and sterling weakness are evidence of excess liquidity in the UK economy.
Morning Wire’s editor Allister Heath thinks that the pace of quantitative easing should be slowed until it has come to a stop.
Of the seven that think no action should be taken, three think that there should be a bias towards more asset purchases in the coming months, while Lloyds TSB’s Trevor Williams says that QE should be expanded next month.
The majority of the shadow committee cite continued uncertainty regarding the sustainability and the strength of the economic recovery as well as the weakness in the money supply.
The Bank of England is not expected to make any moves on monetary policy this month. City analysts believe the MPC will wait until next month when it has a fresh set of inflation figures and the current QE programme has run its course to chart its next move.
The committee will, however, have paid heed to the poor industrial production data that was released earlier this week.
But as Philip Shaw at Investec notes – who is not a member of this paper’s shadow monetary policy committee – this does not mean the monetary policy debate has gone quiet.
He points to continued questions over reserve remuneration policy, saying he would welcome a more productive circulation of bank reserves.