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Bank of England likely to hold fire, waiting for Carney
May 8, 2013 / 11:06 PM / 5 years ago

Bank of England likely to hold fire, waiting for Carney

LONDON (Reuters) - More policy stimulus from the Bank of England is unlikely later on Thursday due to hopes that an expanded scheme to boost lending may be enough to support an economy that is showing signs of gradual recovery.

Bank of Canada Governor Mark Carney reacts during an unveiling ceremony of the new Canadian 5 and 10 dollar bills at the Bank of Canada in Ottawa April 30, 2013. REUTERS/Chris Wattie

Just a few weeks ago, many economists polled by Reuters expected the central bank would restart its bond-buying programme in May after a six-month hiatus, with the economy at risk of tipping into its third recession in five years.

But since then, official data has shown that Britain’s economy grew by a stronger-than-expected 0.3 percent in the first three months of 2013, and industry surveys point to a solid start to the second quarter.

Moreover, the central bank also expanded its Funding for Lending Scheme to give banks more incentive to lend to small businesses - an approach some policymakers believe is preferable to the less targeted policy of quantitative easing, or buying government bonds with newly created money.

Only three out of 63 economists polled by Reuters last week expect a restart to asset purchases after BoE Governor Mervyn King’s penultimate policy meeting before handing over to Mark Carney, who currently heads the Bank of Canada.

“They should wait for Carney,” said former BoE deputy governor Rachel Lomax. “I would keep the powder dry for a bit. It’s not as if waiting for three months will be a terrible mistake.”

The Bank bought 375 billion pounds of gilts between March 2009 and October 2010, while keeping rates at a record low 0.5 percent, and economists on average see a 55 percent chance that the Bank will restart its asset purchase programme later this year following Carney’s arrival.

Last week the European Central Bank, which last week cut its key interest rate and said more stimulus may be on its way.

However, while King and two other policymakers have backed more asset purchases in recent months, the other six officials on the Monetary Policy Committee are concerned that inflation - now 2.8 percent - is not falling enough to allow more stimulus.

Where Carney stands on this debate is unclear. In Canada, he has favoured giving detailed guidance on the direction of policy, backed up by metrics other than a simple inflation target - an approach that Chancellor George Osborne has encouraged him to investigate at the Bank.

Additional reporting by William Schomberg

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