Thursday, June 20, 2013

BoE split 6-3 against more QE at King's final meeting

LONDON (Reuters) - The Bank of England remained divided 6-3 against more asset purchases in June and watched with caution market reaction to signs the U.S. Federal Reserve might reduce stimulus.

With the economy tentatively on the mend, Governor Mervyn King's final rate-setting meeting ended with no change to policy despite his calls for another 25 billion pounds of quantitative easing, minutes to the Bank's June 5-6 meeting showed on Wednesday.

The record said that economic developments in Britain had been generally positive in the past month, pointing to a recovery that was becoming more established in line with the bank's quarterly forecasts last month.

However, policymakers noted a recent rise in global bond yields.

"Financial market participants had become more sensitive to news about possible changes in the monetary policy stance in the United States - the changes in asset prices over the month had been associated with only small improvements in economic conditions," the minutes said.

Policymakers drew different conclusions from this. Some saw it as evidence more asset purchases would be effective if needed in the future, while others thought it showed the difficulty of unwinding further monetary stimulus.

Paul Fisher and David Miles again joined King in voting for the increase in stimulus, warning of euro zone risks and weak wage growth in Britain.

Data out on Tuesday showed a bigger than expected 2.7 percent annual rise in consumer prices in May, in a reminder of the stickiness of inflation in Britain, though the outlook for inflation remains more benign than a few months ago.

Last month the central bank forecast that inflation would peak at just over 3 percent later this year before falling to the 2 percent target by early 2015 - a view still broadly shared by economists.

Those members on the BoE's Monetary Policy Committee who have been voting against more asset purchases were also unlikely to change their views just before the arrival of the new central bank governor, Mark Carney.

Carney has promoted long-term public commitments to low interest rates during his time as Canada's central bank chief, and Britain's finance minister has asked him to assess the viability of this strategy in Britain.

Economists polled by Reuters earlier this month predicted that Carney will indeed give markets a steer on policy. As for more quantitative easing this year, they only saw a 45 percent chance of a top-up.

(Reporting by Olesya Dmitracova and David Milliken)

Source: http://news.yahoo.com/boe-split-6-3-against-more-qe-kings-084234454.html

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