BoE keeps policy on hold to await clearer signs on economy

LONDON Thu Jan 10, 2013 6:31pm GMT

The Bank of England building is seen in central London March 20, 2008. REUTERS/Toby Melville

The Bank of England building is seen in central London March 20, 2008.

Credit: Reuters/Toby Melville

Related Video

Related Topics

LONDON (Reuters) - The Bank of England left its monetary policy settings unchanged on Thursday while it awaits clearer signals on the state of Britain's economy and more news on the progress of a key scheme to boost lending.

After a two-day meeting, the BoE's nine-member Monetary Policy Committee (MPC) said its main interest rate would stay at a record-low 0.5 percent and it would not buy any government bonds on top of the 375 billion pounds purchased so far.

None of the 64 economists polled by Reuters had expected any policy change.

"Most committee members are in data-watching mode, happy to see whether the global economy continues to strengthen and to wait for more information on the effectiveness of the Funding for Lending Scheme," said David Tinsley, economist at BNP Paribas.

"Should the MPC come back to more QE (quantitative easing), which is not our central case under the current policy regime, then they would most likely do so in March or April," he added.

While December surveys of purchasing managers pointed to a 0.2 percent dip in British economic output in the fourth quarter, the latest official data has been more ambiguous.

Construction output grew on the month in October, non-seasonally adjusted figures showed, increasing the chances that the sector - the main drag on the economy last year - boosted gross domestic product in the final quarter.

Meanwhile, the dominant services sector grew 0.1 percent on the month, a better result than many economists had expected.

However, industrial production unexpectedly fell in October after factory output posted its biggest drop since June.

And data on Wednesday showed Britain's goods trade deficit did not narrow as much as expected, raising the risk that the economy as a whole slowed in the last quarter.

Worries about Britain's stubborn inflation are also likely to have dissuaded policymakers from taking further action this month. Inflation unexpectedly stayed at 2.7 percent in November - its highest rate since May and well above the central bank's target of 2 percent.

Early signs that the BoE's Funding for Lending Scheme is helping lending, easing a problem the central bank blames for holding back the economy, has given the MPC another reason not to announce more stimulus as yet.

A BoE survey found banks planned to increase credit supply in early 2013 after a record rise in loan availability late last year, which was helped by the FLS.

The central bank said the programme, which provides cheap funding to banks to encourage lending, is unlikely to materially affect lending volumes until early to mid-2013.

Economists are roughly split on whether the BoE will restart its asset purchases in future, although no restart is expected before February at the earliest, when the BoE publishes its next quarterly economic update.

The BoE will release the minutes of its meeting on January 23.

($1 = 0.6247 British pounds)

(Editing by Hugh Lawson)

FILED UNDER: