August 31, 2012 / 1:53 PM / 8 years ago

Bank of England watchers start post-Posen vigil

LONDON (Reuters) - The Bank of England is widely expected to stick to its current programme of government bond purchases next week and the main interest will be in any behind-the-scenes change in the debate following the departure of asset purchase advocate Adam Posen.

People walk and cycle past the Bank of England, in the City of London, June 15, 2012. REUTERS/Paul Hackett

Thursday’s decision will be the first for new rate-setter Ian McCafferty, who joins the nine-member Monetary Policy Committee from the Confederation of British Industry. However, the market may have to wait until the minutes of the meeting are published on September 19 to find out how his arrival influences the discussion.

While observers are uncertain where to place McCafferty on the traditional spectrum of policy hawks and doves, his previous more upbeat comments about Britain’s economy make it unlikely that he will demonstrate the same drive for ultra-loose policy Posen showed over his three years as an external policymaker.

The central bank is halfway through a four-month plan for 50 billion pounds of gilt purchases to boost the recession-hit economy, and last month Governor Mervyn King said new economic forecasts showed no urgent need for extra stimulus.

“The Bank has made it pretty clear that the quantitative easing programme is going to run through until the November meeting,” Commerzbank economist Peter Dixon said.

Britain’s economy has been in recession since late last year, but - barring a disaster in the euro zone - the central bank and most other economists see a tepid recovery as inflation falls back towards its 2 percent target.

Since the central bank’s decision in August, second-quarter economic output has been revised up slightly but still showed the biggest fall in three years.

Employment has been robust and retail sales picked up, but factory orders weakened, and purchasing managers’ surveys next week will shed light on the strength of any rebound in August.


The big interest will be in any shift in the debate after the replacement of Posen by McCafferty, who until very recently was the CBI’s chief economic adviser. But that will be hard to gauge until the minutes come out.

Posen strongly advocated more asset purchases - frequently voting in a minority of one for this - and other easing steps, while McCafferty’s views, albeit hard to disentangle from those of the CBI, appear closer to the MPC’s centre ground.

“It could mean that what appears to be an open-ended commitment by the Bank to buy more assets ... suddenly becomes less entrenched,” said Commerzbank’s Dixon, who believes asset purchases have lost their effectiveness.

Most economists in a Reuters poll, however, expect the Bank to add another 50 billion pounds of gilt purchases in November to the 375 billion pounds approved so far.

“We do not yet know Mr. McCafferty’s policy stance, but we suspect that this switch of personalities is unlikely to fundamentally sway the committee from its disposition ... to leave the door open to further easing,” said Investec economist Victoria Clarke.

In May, writing for the CBI, McCafferty said further Bank asset purchases could not be ruled out but that a moderate economic pick-up was likely in the second half of 2012 if the global economy improved.

Editing by Ruth Pitchford

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