Bank of England opts against another stimulus

The Bank of England has opted against injecting more money into the ailing British economy, which has one foot in recession but stubbornly-high inflation.

The central bank said Thursday its main policymaking body, the Monetary Policy Committee, decided to maintain its asset purchase program at 375 billion pounds ($ 563 billion).

A number of economists thought another 25 billion pounds infusion was possible. Last month, Governor Mervyn King and two others of the 9member panel had pushed for such an increase.

Minutes of the two-day meeting will be published on March 20 and investors will be interested to see the details of the debate. No explanation behind the decision was provided but one of the reasons the majority may have opted against a further stimulus is likely to have been that inflation in the U.K. is running at an annual rate of 2.7 percent, above the Bank’s official 2 percent target. And inflation is expected to go higher in the coming months and could end up rising even more if the money supply is swelled further.

“Signs of better growth in the service sector, alongside above-target inflation, are likely to have convinced some members that further stimulus was not appropriate at the moment,” said Chris Williamson, chief economist at Markit.

Under the program, which started in March 2009, the Bank has bought government bonds from financial institutions with newly created money. The hope is the banks use the cash to lend more, lowering credit rates and encouraging economic growth.

Policymakers resorted to such stimulus having already reduced the Bank’s main interest rate to the lowest level since it was founded in 1694. Other major central banks — notably in the U.S., eurozone and Japan — have also cut their rates to record lows and, in some cases, also pumped new money into their economies.