Bank of England to announce more stimulus today
The Bank of England began a two-day monetary policy meeting in London yesterday that was widely expected to result in more stimulus to boost Britain’s recession-hit economy.
Britain’s BoE is set to keep its key interest rate at a record-low 0.50 per cent – where it has stood for more than three years – and agree to pump out another £50 billion in fresh cash, analysts said.
The central bank’s Monetary Policy Committee has so far pumped the economy with £325 billion under its quantitative easing stimulus policy since March 2009, when it also slashed its key rate to its all-time low level.
“The odds strongly favour the Bank of England returning to quantitative easing at the conclusion of the Monetary Policy Committee’s July meeting on Thursday after halting the programme in May and June,” said Howard Archer, chief UK economist at the IHS Global Insight consultancy.
“Latest economic data and survey evidence have been weaker and disappointing overall, increasing the risk that the economy suffered further contraction in the second quarter.”
Analysts added the BoE would unveil more QE because British inflation was falling amid eurozone debt concerns, despite last week’s EU summit deal aimed at further tackling the bloc’s crisis.
Though not a member of the eurozone, Britain relies heavily on the area for the day-to-day trading of its goods and services.
The European Central Bank is forecast to cut it main lending rate from its current record-low level of one per cent today.
Under QE, the central bank creates new cash to purchase assets such as government and corporate bonds with the aim of boosting lending and economic output.
Britain’s recession is deeper than initially thought after official data released last week showed the economy shrank 0.3 per cent in the first quarter after a higher-than-expected 0.4-per cent contraction in late 2011.
A recession is defined as two quarters running of contraction.
Despite QE, Britain’s main banks have been reluctant to lend to businesses and individuals as they seek to repair their balance sheets, triggering the BoE to recently announce separate stimulus measures.