BoE main­tains bond plan as econ­omy sus­tains mo­men­tum

The Pak Banker - - Front Page -

LONDON: The Bank of Eng­land (BoE) kept its emer­gency stim­u­lus pro­gram un­changed af­ter re­cent data sug­gested the econ­omy may be strong enough to weather the govern­ment's im­pend­ing spend­ing cuts, un­der­min­ing the case for more aid.

The nine-mem­ber Mon­e­tary Pol­icy Com­mit­tee, led by Gover­nor Mervyn King, held its bond-pur­chase plan at 200 bil­lion pounds ($315 bil­lion), as fore­cast by all 34 econ­o­mists in a Bloomberg News sur­vey. The bank also kept its main in­ter­est rate at a record low of 0.5 per­cent. Man­u­fac­tur­ing and ser­vices data in­di­cate the re­cov­ery sus­tained mo­men­tum in the fourth quar­ter. While spend­ing cuts to tackle the record bud­get deficit may curb ex­pan­sion, in­fla­tion re­mains above the bank's tar­get and pol­icy mak­ers have split three ways on whether to raise rates to tame price growth or add to stim­u­lus.

"They will re­frain from fur­ther quan­ti­ta­tive eas­ing as the un­der­ly­ing strength of the econ­omy, at least in the short term, has been good," He­tal Me­hta, an econ­o­mist at Daiwa Cap­i­tal Mar­kets Europe Ltd. in London and a for­mer U.K. Trea­sury of­fi­cial, said be­fore the an­nounce­ment. "We ex­pect fis­cal tight­en­ing to have a sig­nif­i­cant im­pact, but re­cent data sug­gest we will have enough mo­men­tum to take us through that."

The pound was lit­tle changed against the dol­lar af­ter the de­ci­sion and was down 0.4 per­cent at $1.5742 as of 12:03 p.m. in London. The yield on the 10-year gilt was 3 ba­sis points lower at 3.51 per­cent.

U.K. man­u­fac­tur­ing growth un­ex­pect­edly ac­cel­er­ated to the fastest pace in 16 years in Novem­ber as ex­port or­ders climbed, and an in­dex of ser­vices stayed close to a four-month high, sur­veys last week showed. Gross do­mes­tic prod­uct in­creased 0.6 per­cent in the three months through Novem­ber, more than the 0.5 per­cent recorded in the quar­ter through Oc­to­ber, the Na­tional In­sti­tute of Eco­nomic and So­cial Re­search, whose clients in­clude the Bank of Eng­land, said on Dec. 7. "Quan­ti­ta­tive eas­ing will not be restarted un­less there is a very se­vere slow­down in ac­tiv­ity," said Azad Zan­gana, an econ­o­mist at Schroders In­vest­ment Man­age­ment in London and an ex-Trea­sury of­fi­cial. Other cen­tral banks have al­ready added to mea­sures to pro­tect their economies. Fed­eral Re­serve Chair­man Ben S. Ber­nanke said this week he may ex­pand bond pur­chases be­yond the $600 bil­lion an­nounced last month. The Euro­pean Cen­tral Bank post­poned its with­drawal of emer­gency stim­u­lus last week and stepped up govern­ment-debt pur­chases. At the Bank of Eng­land, pol­icy maker Adam Posen has called for an ex­pan­sion of the bond pro­gram, say­ing the fis­cal squeeze will un­der­mine do­mes­tic de­mand. The Of­fice for Bud­get Re­spon­si­bil­ity, the Trea­sury's fis­cal watchdog, fore­casts that the cuts will lead to the loss of 330,000 public­sec­tor jobs by 2015. -PB News

LA­HORE: Pun­jab Gover­nor Sal­man Taseer and Chief Min­is­ter Mian Shahbaz Sharif stand­ing in the re­spect of na­tional an­them dur­ing oath tak­ing cer­e­mony of Chief Jus­tice La­hore High Court Mr. Jus­tice Ejaz Ah­mad Chaudhry at Gover­nor House. -App

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