BOE chief awaits scru­tiny on QE halt as UK re­lapse risk lingers

The Pak Banker - - Front Page -

LON­DON

Bank of Eng­land Gover­nor Mervyn King is pre­par­ing for tough ques­tions on why pol­icy mak­ers halted its bond- pur­chase pro­gram at a time when the econ­omy’s re­cov­ery isn’t yet as­sured.

King will face a hard time ex­plain­ing why the cen­tral bank doesn’t plan to buy more gilts to stim­u­late growth as Bri­tain tries to shake off a re­ces­sion, said economists in­clud­ing Jens Larsen at RBC Cap­i­tal Mar­kets and Rob Wood at Beren­berg Bank, both for­mer BOE of­fi­cials. He will brief jour­nal­ists on Nov. 14 and tes­tify to law­mak­ers in the com­ing weeks.

While Bri­tain’s econ­omy emerged from re­ces­sion in the third quar­ter, the re­cov­ery re­mains un­der threat from the con­tin­ued cri­sis in the euro area, the U.K.’s big­gest trad­ing part­ner, and cool­ing global growth. Against that back­drop, as well as the pres­sure from the gov­ern­ment’s fis­cal squeeze, King will have to ex­plain why the MPC pulled the plug on what has been its main pol­icy tool since 2009.

“They are fac­ing a sig­nif­i­cant com­mu­ni­ca­tions chal­lenge here,” Larsen said in a tele­phone in­ter­view. “It will be dif­fi­cult com­bin­ing what may be a weaker out­look with try­ing to ex­plain why they chose to halt QE.”

The Mone­tary Pol­icy Com­mit­tee said that it doesn’t plan to buy any more bonds be­yond the 375 bil­lion pounds ($599 bil­lion) al­ready pur­chased, con­clud­ing a third round of quan­ti­ta­tive eas­ing. Economists at No­mura In­ter­na­tional Plc and Bar­clays Plc said the move was likely to have split the nine-mem­ber MPC. The cen­tral bank will pub­lish the min­utes of the two-day meet­ing, show­ing how the com­mit­tee voted, on Nov. 21.

The de­ci­sion fol­lowed com­ments from BOE Deputy Gov­er­nors Charles Bean and Paul Tucker that QE may not have the same im­pact as it did when it was in­tro­duced in 2009. It also sug­gests the bank may fo­cus more on credit-boost­ing mea­sures such as the Fund­ing for Lend­ing Scheme to ig­nite growth.

At the same time, in­creased in­fla­tion­ary pres­sures may also have prompted pol­icy mak­ers to hold fire. The Bank of Eng­land fore­cast in Au­gust that in­fla­tion would slow to be­low its 2 per­cent tar­get by the end of next year. Re­cent en­er­gyprice in­creases have boosted the near-term out­look for in­fla­tion and the cen­tral bank may raise its fore­casts next week. Still, Royal Bank of Scot­land Group Plc says the pro­jec­tions will still im­ply a bias to­ward loos­en­ing. King will de­liver an open­ing state­ment and then take ques­tions at the press con­fer­ence, when the bank will pub­lish its quar­terly In­fla­tion Re­port.

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