The Monetary Policy Committee of the Bank of England left its policy unchanged which includes no further expansion to the current asset purchase program and left interest rates unchanged at 0.5% on account of the UK economy showing signs of recovery, albeit sluggish as reported earlier.
It is widely believed that the UK’s economy has managed to come out of the recession during the third quarter of 2012 with output showing signs of growth after being hit by the extra public holiday during the second quarter and the shot in the arm by the London Olympic and Paralympic ticket sales.
The nine member MPC of the BoE were confident about the Funding for lending scheme which was created to ease the flow of credit in the nation’s economy to support recovery efforts.
Analysts however are of the opinion that Britain would need some more cash stimulus as the economic recovery is still sluggish. Spending cuts by the government and the dangers of the Eurozone crisis continue to haunt Britain’s economy.
For the moment, the October meeting of the BoE’s MPC has kept its monetary policy unchanged which included the existing £50 billion of British bonds which takes the total asset purchase program to £375 billion which is due to expire in November.
The key benchmark interest rates have also been left unchanged at record lows of 0.5% as widely expected.
The economic data that came out earlier this week shed light on a fragile economy especially in the construction, manufacturing sector which is still in contraction while the services PMI managed to expand but softly during September. Given the circumstances, the BoE’s FLS is yet to bear fruit.
With the exception of BoE MPC member David Miles who saw a good cause for more stimulus, the majority of the MPC members including BoE’s economist Spencer Dale and external member, ben Broadbent amongst others choose to wait and watch until the November interest rate meeting voicing concerns about the inflation outlook and further pinning hopes that the FLS would help in the economic recovery.
Bank of England will be releasing its MPC minutes meeting later in the month on 17th October.
In all likelihood, November MPC meeting will be a key factor as the quarterly inflation report releaed by then would help the policy makers to decide on whether to embark on more stimulus or not.
Another factor the policy makers will be closely watching would be how the ECB’s plan will be unfolding given that Spain has witheld its request for financial aid and overall prevailing Eurozone crisis.