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Instant View - BoE decides not to restart gilt purchases
March 7, 2013 / 12:11 PM / 5 years ago

Instant View - BoE decides not to restart gilt purchases

LONDON (Reuters) - The Bank of England decided not to pump more money into Britain’s ailing economy on Thursday in what is likely to have been a close-run decision.

The central bank’s Monetary Policy Committee opted not to add to the 375 billion pounds of government bonds bought with newly created money between March 2009 and October 2012. Following are economists’ reactions to the decision.



”The monetary policy outlook remains cloudy. Few would deny that the economy would benefit from a boost to aggregate demand. The question is how best to achieve this.

”QE may be relatively ineffective in the current low-confidence environment, and most MPC members may be reluctant to sanction a large injection given the persistence of above-target inflation.

“At the same time, however, realistic options for loosening other than QE all come with drawbacks and have been ruled out by the MPC for the time being, or are beyond the ambit of the central bank.”


”We had expected a further GBP £25bn easing at the meeting, though we acknowledged the risks were finely balanced. The data flow since the February Inflation Report has been mixed, though certainly no stronger than the projections contained in the Report. Meanwhile expectations for a move to easing were raised by the 3-6 vote in the minutes and by fairly dovish talk from members at the TSC meeting.

”With talk of a change in the Bank’s remit at the Budget, we view the decision as a delay in a more pronounced easing in policy rather than signalling anything about the ‘absolute’ level of monetary accommodation that will be forthcoming. The Committee may well have wanted to see what the Budget brings before moving ahead of it.

”Moreover, it is clear there are discussions on further credit easing measures in train and it is possible the Budget will bring further announcements here too.

”A significant loosening in the remit could see the Bank come back in a more decisive way in the April MPC meeting.

“If on the other hand the Chancellor announces some sort of short review, we will have to wait until the new Governor takes over. From the point of view of the expected future stock of assets held outside the central bank these differences are really only about timing issues and not the impact of policy.”


”The lack of action comes as only a minor surprise: although three of the nine MPC members had already voted for further QE in February, including Bank Governor Mervyn King, the recent economic data leave the overall impression of an economy that is showing some signs of pulling out of the downturn seen late last year.

“The current limitations of monetary policy have been recognised by Sir Mervyn King, as well as by other central banks around the world - including the ECB and the Bank of Japan. In the absence of any new government policies to address these constraints, the outlook for the UK is therefore one of very modest growth at best for the foreseeable future.”


“With sterling and gilt yields lower in recent weeks, and signs from the labour market that the economy may not be as weak as the ‘Triple Dip’ headlines suggest, the MPC has decided that extra stimulus was not needed at this time. Going forward, further QE remains possible, however, we think a rate cut is unlikely, given the likely squeeze on lenders margins and the detrimental effect on money markets.”


“The MPC left its policy tools unchanged in March, which disappointed some expectations for more QE being announced. Most members do not agree with the doves, who believe further stimulus need not be inflationary, and the deterioration in demand is not yet sufficient to change the strong inflation outlook. We still expect further disappointment in the recovery and see a strong risk (40 percent) that this triggers more QE later this year.”


”Although the Monetary Policy Committee (MPC) left policy on hold again today, we expect that it will not take much to swing a majority of members in support of more stimulus in the near future.

”While this will probably, in part, take the form of more quantitative easing (QE), the growing openness of the Committee to new ideas suggests that the MPC is unlikely to remain a “one-club golfer”.

“Given the range of potential instruments at its disposal, the MPC can be confident that monetary policy is by no means out of ammunition. But we will have to wait a bit longer to see what club, or clubs, the Committee chooses to wield.”


”The Bank of England’s decision to hold off from stimulative action was highly likely the result of a tightly split vote and we strongly suspect that the MPC will act in the second quarter and very possibly as soon as April.

”Improved February surveys for the dominant services sector and retail sales may have been just enough to have stopped the Bank of England from acting this month, particularly as support for the economy is coming from sterling’s marked decline.

”However, we suspect that it is more a question of what further action will the Bank of England take to try and help the economy, rather than will they act.


”The Bank of England has left monetary policy unchanged with Bank Rate remaining at 0.5 percent and the size of the asset purchase facility maintained at £375bn. We were in the camp expecting an extra £25bn of QE on the basis that since three members, including Governor King, voted for an extra £25bn of QE in February, there wasn’t a particularly high hurdle for more action.

”Indeed, recent MPC voter comments suggested that the majority of members were open to the idea of more stimulus should the data remain soft, and in general it has. Furthermore, the latest data on lending generated by the BoE’s Funding for Lending Scheme had been disappointing. However, the steep fall in sterling seen in recent weeks may have made the BoE more cautious.

“While they have promised to ”look through“ a protracted period of above target inflation, the 7% fall in sterling on a trade weighted basis puts upside risk on the inflation profile. With wages flat lining this risks squeezing households even more, implying ongoing weakness in domestic demand. Therefore they may have taken the view that they didn’t needs to add to sterling’s woes by printing more money this month. In any case, UK bond yields have fallen back despite the rating downgrade while equity markets remain buoyant. We still look for more stimulus given the weak demand story in the UK, but it is more likely to come in May when the BoE release new forecasts.”

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