BOE Expected to Keep QE On Hold as Osborne Extends Austerity

By TraderVox.com

Tradervox.com (Dublin) – The Bank of England Monetary Policy Committee is expected to leave the bond-buying program on hold as they discuss the need for additional stimulus just a day after the George Osborne, Chancellor of the Exchequer, approved five more years of austerity. According to a market survey, Monetary Policy Committee and the BOE Governor Mervy King will leave the asset-purchases program at 375 billion pounds when they meet today. George Osborne, in a statement yesterday indicated that the credible fiscal plan has given room for supportive monetary policy.

According to David Tinsley, a London-based economist at BNP Paribas and a former BOE official, the BOE might keep the rate unchanged and hold the current bond-buying purchases until after the new BOE governor takes office. He indicated that the risk have shifted to more quantitative easing as the data from the UK have not been impressive. Market economists and analysts are unanimous that the BOE will most likely hold the bond-buying program at the current 375 billion pounds. In a statement to the parliament, George Osborne cut his economic growth forecast to 1.2 percent in the next year, down from 2 percent indicated earlier. He also pushed austerity measures term to 2018, coinciding with Mark Carney’s final year as the Bank of England governor.

According to Office of Budget Responsibility, the reduced economic growth forecast came after the BOE governor Mervyn King’s downbeat assessment of the economy in November. King noted that the UK economy faces a zig-zag recovery process after coming out of a double dip recession in the third quarter. According to survey data released this week, the manufacturing sector shrank in November while growth in services and construction sectors weakened.

According to Alan Clarke, an economist in London at Scotia Bank Europe Plc, the OBR economic growth forecast is optimistic hence it does not necessitate the MPC to put its foot on the brakes at the moment. He added the loose monetary and tight fiscal policies will continue for several years.

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