British central bank "unlikely to extend QE in short term": economists
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E-mail Xinhua, July 18, 2013
Economists said Wednesday the new Bank of England (BOE) Governor Mark Carney was unlikely to extend the Quantitative Easing (QE) program in the short term after the publication of the details of this month's BOE Monetary Policy Committee (MPC) minutes.
Economists were commenting on the release of the first minutes of the BOE MPC which sets interest rates and extensions QE program under new governor Carney, who took up the post at the beginning of this month.
The minutes showed that Carney voted against interest rate rises and any extension of QE, and had succeeded in winning the support of all the other members of the nine-person MPC.
Simon Hayes, chief British economist with Barclays, told Xinhua, "The financial markets interpretation is that it makes QE less likely -- and I think that is right."
Hayes said, "It seems that the more hawkish members of the BOE MPC have looked at the various improvements in activity data, and have become more confident that the recovery is well-established and that for that reason the position is hardening; this makes them less likely to support QE at any future point."
"The more doveish MPC members have also switched votes away from QE this month, even though they have retained the option to move back again if they think that is necessary," Hayes added.
Hayes said that this implies that they are open to considering non-QE options for loosening policy.
Hayes said, "Forward guidance is the sort of thing we are expecting to get next month. It (the minutes) did imply to some extent that the more dovish members think the economy needs some extra stimulus, and QE is not entirely attractive and if there are other options they are more than happy to consider those as substitutes."
Howard Archer, chief British and European economist at IHS Global Insight, said, "Carney managed to achieve consensus among the MPC as there was a 9-0 vote against more QE in July."
Archer added, "However, the indication from the minutes is that some MPC members do still believe that further stimulus is warranted, but July was not the month to act given that the Bank of England is due to decide in August as to whether it will adopt a policy of forward guidance, including intermediate thresholds."
Archer said the July MPC meeting "comes across very much as a holding operation until major decisions are taken in August", most notably on whether the forward guidance should be adopted, and if so in what form.
Archer said that recently improved news on the economy meant that there was little pressing need for the Bank of England to go for more stimulus in July.
However, while the MPC was unanimous in agreeing that there should be no more stimulus in July, members were also keen to make it clear that any tightening of monetary policy is a long, long way off, said Archer.
Archer added, "We are now increasingly leaning towards the view that more QE will only occur should the economy suffer a marked relapse over the coming months, which certainly cannot be ruled out given still significant domestic headwinds as well as still significant concerns and uncertainties over the global economy, and the Eurozone in particular."
David Kern, chief economist at the national business organization the British Chambers of Commerce (BCC), said the unanimous vote was a surprise, but a pleasant one.
Kern added, "We have repeatedly stated that more QE is not necessary at the present time, so this will be welcomed by businesses. The forward guidance issued upon the decision that interest rates will remain low for the foreseeable future will reassure business."
Kern added, "There is also a recognition that the MPC should look for policy measures other than more QE. When the MPC makes its views on future measures known in August we hope that it considers the possibility of using the existing QE program to purchase private sector assets other than gilts, including securitized SME loans." Endi
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