Bank of England keeps policy steady despite new remit
The Bank of England
The Bank of England decided not to pump fresh money into its stagnant economy yesterday, despite a new remit that gives it more leeway to disregard above-target inflation.
Further stimulus may still be on its way, however, after finance minister George Osborne tweaked the central bank’s mandate two weeks ago.
He gave the bank stronger backing to ignore the series of one-off factors that have kept inflation above target for most of the time since the financial crisis. The remit also paves the way for a broader review of the Bank of England’s monetary policy when Mark Carney, who currently heads Canada’s central bank, succeeds governor Mervyn King in July.
But for now there is no majority on the nine-member Monetary Policy Committee to add to the £375 billion of government bonds it bought between March 2009 and October 2012, in line with economists’ expectations.
Interest rates remained at a record low 0.5 per cent.
Although King and two other policymakers backed restarting the Bank of England’s asset-buying quantitative easing programme in February and March, there has been no sign of a softening in the opposition of the other six members, who are more concerned about inflation and sterling weakness.
Sterling strengthened slightly against the dollar and June gilt futures fell to a session low after the bank’s decision, as economists had seen a slim chance of action this month.
But economists think more stimulus is likely later in 2013, either when the central bank publishes a quarterly update to its economic forecasts next month or after Carney’s arrival.
Britain’s economy has stagnated over the past two years as it struggles to move away from government spending and financial services and towards exports after the financial crisis.