BOE governor seen facing third loss

LONDON: Bank of England (BoE) governor Mervyn King risks facing a third defeat in his bid to expand stimulus as officials wary of dislocating inflation expectations set aside new freedoms given by a change to their remit.

The nine-member Monetary Policy Committee (MPC) led by King was expected hold its target for asset purchases at £375bil yesterday, according to 34 of 37 economists in a Bloomberg News survey.

King and two colleagues were out-voted in February and March in a push for a £25bil increase.

Yesterday’s meeting is the first since Chancellor of the Exchequer George Osborne expanded the MPC’s flexibility, broadening its capacity to ease policy even with above-target inflation.

The change, three months before the arrival of new governor Mark Carney, may not be enough to push

They have clearly been concerned about the speed of the pound’s decline and the impact on inflation. — BRIAN HILLIARD OF SOCIETE GENERALE

through more stimulus after the MPC majority raised concerns that it could be interpreted as a loss of focus, unhinging confidence in their inflation commitment and driving the sterling pound lower.

“They have clearly been concerned about the speed of the pound’s decline and the impact on inflation,” said Brian Hilliard, chief UK economist at Societe Generale SA in London and a former BoE official. “While it’s important the MPC doesn’t just sit on its hands until Carney comes, the basic story is that the output gap is still wide, but inflation remains a problem.”

Osborne announced on March 20 that he will give the MPC more leeway to meet its 2% inflation target amid strains in the economy. He also asked the BoE to assess the benefits of forward guidance and the use of “intermediate thresholds” that will influence policy changes.

UK inflation accelerated to 2.8% in February, and the BoE forecasts a further increase in the coming months.

The British Retail Consortium said its inflation measure rose in March and that there was upward pressure on import prices from the pound’s weakness. — Bloomberg