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BoE leaves policy intact as UK stumbles towards growth

Source : REUTERS
Last Updated: Thu, Apr 05, 2012 11:28 hrs
The Bank of England building is seen in central London

The Bank of England left its monetary policy on hold on Thursday, judging that no addition to its current stimulus was yet necessary as the economy looks to be stumbling back to growth.

All 56 economists polled by Reuters last week expected the BoE to keep interest rates and the target for its asset purchases unchanged, after it committed in February to buy 50 billion pounds more of gilts over three months.

Surveys of purchasing managers released this week showed a surprise pick-up in growth across British services, manufacturing and construction in March, pointing to first-quarter GDP growth of as much as 0.5 percent.

The slew of positive news was tempered on Thursday by factory output data, showing the biggest monthly fall in almost a year in February. However, industrial production - the more important number for GDP - ticked up as expected, keeping the economy on track to a modest expansion.

The central bank has forecast a choppy recovery this year, after the economy contracted in late 2011.

Signs that Britain will avoid a recession coupled with worries about potentially sticky inflation are likely to dissuade the BoE from announcing another cash injection at the key May meeting, when its current asset buys are completed and more first-quarter economic data is out.

A recent rise in oil prices has raised fears that British inflation will not fall towards the BoE's 2 percent target as fast as its nine-strong Monetary Policy Committee (MPC) hopes.

"If I were on the MPC, I'd be more worried about whether inflation is coming back (down) as quickly as I thought," said Tom Vosa, economist at National Australia Bank.

"For quite a few of them, I suspect, it will be the CPI number that will be the swing factor, not the activity data."




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