BoE Votes to Continue QE as Split Emerges

Inflation fears split panel on continuing policy; interest rate also left at record low

The Bank of England (BoE) voted to continue its current quantitative easing policy, amid growing concerns over inflation that threaten to split the panel on continuing the strategy after the current round is completed. Meanwhile, members voted to maintain the central bank’s interest rate at its current low of 0.5%.

Bloomberg reported Thursday that by next month the round of bond buying the British central bank embarked on in July will be complete, forcing its members to decide whether to go beyond their initial target of 375 billion pounds ($604 billion). As commodity costs rise, they are forcing corresponding increases in prices, which has given some of the nine members of the Monetary Policy Committee (MPC) pause.

Policymaker Ben Broadbent has expressed concern that inflation, rising at a faster-than-expected rate, limits the central bank’s ability to increase QE. Last month, Chief Economist Spencer Dale pointed out possible pitfalls in continuing a loose monetary policy. However, their reservations may not be enough to sway the majority from their own worries that a need for additional stimulus could continue.

“They can afford to wait until November,” said George Buckley in the report. Buckley, an economist at Deutsche Bank in London, spoke before the BoE announced its decision, and also forecast that, although he didn’t expect an increase in QE next month either, it’s “going to be a close call,” he said.

Both Broadbent and Dale pointed to increased inflation risk over the last month, with Dale warning against “Pavlovian” calls to boost QE. He was quoted saying, “Prolonged and aggressive monetary accommodation, combined with increasingly unconventional policy tools, also comes with potential costs and risks.”

Still, the economic concerns besetting Britain could mean, according to Howard Archer, an economist at IHS Global Insight in London, that the odds are “heavily slanted” toward another expansion of QE this year.

Archer was quoted saying, “The economy is currently showing some signs of improvement and inflation could be sticky over the coming months.” Still, “it is extended weak economic activity rather than inflation that remains the greatest risk.”

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