UK: Bank of England policymakers hold firm on money supply as new governor Mark Carney attends first MPC meeting
- Credit: PA
The Bank of England held back today from injecting billions more pounds into the economy after its first interest rate meeting under new governor Mark Carney.
Policymakers decided against boosting the bank’s £375billion quantitative easing (QE) programme amid signs that the UK is on the road to recovery. It also held interest rates at 0.5%.
A hat-trick of positive data from the manufacturing, construction and services sector this week dispelled any immediate pressure on Mr Carney to boost QE.
But many economists expect that, with gross domestic product (GDP) still lagging behind its pre-recession peak, it is only a matter of time before the Canadian will feel fresh action is necessary to achieve “escape velocity” to lift the UK out of the doldrums.
While it is not yet known how members of the Monetary Policy Committee voted at today’s meeting, it was suggested that Mr Carney would be unlikely to go out on a limb and push for more QE, risking defeat by fellow members of the nine-strong body in his first week in the job.
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Though seen as an activist on monetary policy, it is thought Mr Carney will not have wanted to emulate a successive run of defeats for predecessor Sir Mervyn King, whose calls for a £25bn boost to the stimulus programme were repeatedly rejected by a 6-3 majority during his final months in office.
Sir Mervyn pointed out last week that while his Canadian successor, who has been described as a banking “rock star”, may be more “persuasive”, he only holds one vote on the MPC.
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Minutes of the meeting published later this month will reveal how the new governor chose to play his hand.
The recent pick-up in the economy has given Mr Carney some breathing space from taking urgent action, with growth of 0.3% in the third quarter and 0.5% expected in the second quarter.
Strong monthly purchasing managers’ index data this week, led by the powerhouse services sector, will also have weakened the case for more QE.
Meanwhile, recent revisions by the Office for National Statistics (ONS) meant that the double-dip recession at the end of 2011 and first half of 2012 was erased from history, adding to the positive mood.
But the revised figures dealt an unexpected blow when they revealed that the initial recession following the financial crisis was far worse than first feared, meaning the economy is now even further behind its pre-crisis level.
GDP is now 3.9% lower than its peak in the first quarter of 2008 - where previously it was estimated to be 2.6% below, according to the ONS.
Some expect Mr Carney will begin to take action to pull the economy decisively back into sustained growth from next month, with tools such as more QE and “forward guidance” to reassure markets that interest rates will remain low in the future.