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BoE Could Pause QE

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Adam Posen switched his vote on quantitative easing at the last meeting of the Bank of England’s (BoE) Monetary Policy Committee (MPC), clearing the way for a possible pause in quantitative easing (QE) in May.

Bloomberg reported Wednesday that BoE minutes revealed a shift in Posen’s vote as he ceased to urge additional QE. He and David Miles had been urging a boost in QE as a means of combating recession, but with inflation continuing to hover above its target range, Miles remained the sole vote among the nine members to expand the policy.

The minutes said, “There was a greater chance than before that above-target inflation would persist into the medium term. For one member, the balance of risks continued to warrant an expansion of the asset-purchase program this month, although the decision was finely balanced.”

Committee members agreed upon another month of asset purchases in the amount of 325 billion pounds ($517 billion), but in May they will decide whether to continue additional QE based on quarterly forecasts. Although the International Monetary Fund (IMF) said Tuesday that BoE could possibly loosen policy even more to encourage growth, inflation accelerated unexpectedly for the first time in six months.

“More quantitative easing in May is pretty unlikely now,” said Simon Wells, who is an economist at HSBC Holdings in London. He added, “I wouldn’t rule out more QE later in the year. The real economy will warrant more, but it’s not going to be in May. It could be the second half.”

Deputy Governor Paul Tucker characterized inflation as “uncomfortably above target.” Minutes from the meeting said, “There was a risk that inflation would fall more slowly than assumed in the February inflation report projections, and the recent flow of data provided some support for this view.”

Inflation rose from 3.4% in February to 3.5% in March, continuing to sustain itself above BoE’s target of 2% for the 28th straight month. The Office for National Statistics said Tuesday that core inflation, which does not include alcohol, food, tobacco or energy prices, rose to 2.5% from 2.4%.


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