Possibility of more QE in coming months remains - ITEM Club comments on today's MPC decision

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s interest rate decision:

  • We didn’t expect any change in monetary policy today
  • But the possibility of more QE in the coming months remains
  • The Bank needs to send a clearer message about its commitment to keeping the recovery on track

“There was never any realistic chance of a change in monetary policy today. The outlook remains pretty similar to last month, with the fourth quarter of 2012 likely to have been weak and the recovery in the coming months expected to be slow.
“The Bank has made it clear that it judges the government’s decision to use the cash accumulating in the Bank’s Asset Purchase Facility to reduce the stock of government debt as equivalent to purchasing gilts through the APF. The minutes of recent MPC meetings have sent contradictory messages over whether Committee members are open to authorising further asset purchases.
“In our view, the Bank has been very ambivalent about their policy stance, with members projecting a neutral attitude about whether policy should be loosened or not. We think that, similar to the Fed, the Bank should make a clearer commitment to doing whatever it takes to keep the recovery on track and provide guidance on the likely future path of rates. This is especially true in the current circumstances with the recovery and confidence being so fragile.”