BOE to hold fire as new Canadian chief speaks
AFPLONDON -- The Bank of England is set to freeze its key interest rate at a record-low 0.50 percent at a meeting Thursday, when its incoming governor appears before parliament for the first time.
February 7, 2013, 11:37 am TWN
The BOE, which will be led by Canadian central bank chief Mark Carney from July, will give an update of its monetary policy following a two-day meeting and amid growing concern that Britain is heading for a third recession in five years.
The bank's nine policy members must decide whether to alter the level of its emergency cash stimulus, known as quantitative easing (QE) used to prop up the economy after it surprisingly contracted in the final quarter of 2012.
Prior to Thursday's decisions, Governor-elect Carney appears before parliament's Treasury Select Committee of lawmakers who will quiz him over his monetary policy stance.
“With the BOE widely expected to leave monetary policy on hold on Thursday, future Governor Mark Carney giving evidence at parliament on the UK monetary policy framework on the same day may gain more market focus,” said Bank of America economist Nick Bate.
“With the economic outlook broadly unchanged since its last forecasts in November ... the bank is widely expected to leave interest rates and QE on hold at 0.5 percent and 375 billion pounds, respectively.”
British borrowing costs have stood at the record-low level for almost four years, in which time the BOE has pumped 375 billion pounds (US$589 billion, 436 billion euros) of new cash into the economy under the stimulus program.
Under QE, the Bank of England creates cash that is used to purchase assets such as government and corporate bonds with the aim of increasing lending by retail banks and boost economic activity.
Lawmakers are meanwhile likely to ask Carney whether the British central bank should continue to set interest rates with a view to maintaining its 2-percent annual inflation target.
Carney, who will take the reins from current BOE chief Mervyn King, had suggested in a recent speech that economic output might be a better target measure.
“Carney has recently advocated nominal GDP targeting as a way of committing the central bank to act aggressively against economic weakness, and to manage expectations of policy more effectively,” said Barclays analyst Simon Hayes.