bank of england to sit tight despite recession
Last Updated : GMT 11:53:50
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Bank of England to sit tight despite recession

Arab Today, arab today

Arab Today, arab today Bank of England to sit tight despite recession

London - AFP

The Bank of England is expected to sit tight at Thursday\'s monetary policy meeting despite Britain\'s deepening recession, as the bank waits to see the impact of a recent cash stimulus injection, analysts said. The BoE last month decided to pump out another £50 billion ($78 billion, 62 billion euros) of new money into Britain\'s struggling economy and held its key interest rate at a record-low 0.50 percent. The central bank\'s nine-member Monetary Policy Committee (MPC) in July voted 7-2 to increase its quantitative easing (QE) stimulus programme to a total of £375 billion by November. Ahead of Thursday\'s meeting, economists said the BoE would want to see the impact of the extra QE cash before deciding whether to step up its fight against Britain\'s worsening recession. \"We do not expect any change in policy when the MPC meets this week,\" said Barclays Capital analyst Simon Hayes. \"The committee announced a £50-billion expansion of QE last month, which is set to take until just before the November meeting to complete, and we believe the MPC will wait until then before announcing a formal policy change.\" Since the July meeting, official data has revealed a deepening recession in Britain, which is struggling under government austerity measures and fallout from the eurozone debt crisis. Britain escaped a deep downturn in late 2009 but has struggled ever since and fell back into recession in the final quarter of 2011. In a heavy blow, figures last week showed British Gross Domestic Product (GDP) slumped 0.7 percent in the second quarter from the previous three months, due to steep output falls in the construction and manufacturing sectors. \"The BoE may choose to remain on hold when it meets on Thursday because of the cloudiness that surrounds the underlying strength of the UK economy,\" said Kathleen Brooks, an analyst at trading site Forex.com. \"We expect the UK economy to remain weak for some time and for the Bank to eventually do more QE and maybe even cut rates further.\" As well as weak output at home, Britain\'s economy is also suffering from the ongoing crisis in the neighbouring eurozone. Britain is not a member of the eurozone but relies on the region for much of its trade. The April-June GDP contraction was meanwhile the biggest quarterly fall since the first quarter of 2009. Britain was already in recession after posting two successive negative quarters since late 2011. The economy shrank 0.4 percent in the fourth quarter of last year and by 0.3 percent in the first quarter of 2012. Under QE, the bank creates new cash to buy assets such as corporate and government bonds, with the aim of boosting lending and stimulating economic activity. In a separate development earlier this month, Britain launched an £80-billion \"funding for lending\" scheme to provide the banking sector with cheap funding to stimulate lending to households and businesses. The BoE-backed programme also aims to free up the log jam in credit hitting the economy, by offering banks cheap finance on the condition they pass it on to borrowers.

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