No QE Or Rate Rise From Bank Of England

The Bank of England has opted to take no action this month to help boost the flagging UK economy.

At its monthly meeting, the Monetary Policy Committee voted to keep the base rate of interest at its historic low for the 30th consecutive month.

It also decided not to boost money supply by extending quantitative easing (QE) beyond the �200bn it launched in 2009.

That is despite greater debate on the issue last month, when more members considered joining their colleague Adam Posen's call for an extra �50bn.

A shift in the balance of concern for growth became clear last month when two policymakers who had previously backed a rise in the bank rate from 0.5%, voted for no change.

Then, Martin Weale and Spencer Dale joined their seven other colleagues including Bank governor Sir Mervyn King in holding the base rate for fear any increase would damage what growth the UK economy has.

It over-rode their earlier concerns about the need to tackle rising inflation, which Sir Mervyn expects to reach 5% in the coming months because of utility bill increases.

He has consistently argued the inflation is "imported", driven by factors beyond the Bank's control like the high price of commodities.

In the run up to this month's vote, there was speculation among economists about the possibility of more QE, or money supply as the Bank prefers to describe it, to help inject more liquidity into the financial system - despite the risk of it stoking inflation.

While such a move is backed by a growing number of business groups, there was no support among members of the Sky News Money Panel for an immediate injection of QE

All five expressed concern about economic growth.

None expect an increase to the central interest rate this year, with two opting for 2013.

Ross Walker, chief UK economist at RBS, said: "A double-dip recession is not my central scenario but the risks of a relapse have risen.

"Whilst recognising the need to guard against undue pessimism, it is also the case that many in the financial markets (and elsewhere) appear to have under-estimated just how difficult and protracted the emergence from this 'balance sheet recession' will be."

He warned of signs that the business world may scale back its investment expenditure, citing surveys suggesting that big corporates were now becoming less willing, rather than less able, to spend.

WPP chief executive Sir Martin Sorrell expressed worries that the world was talking itself into a double-dip recession.

Anthony Thompson, the chairman of Metro Bank, highlighted Britain's "strong entrepreneurial history".

He said it was "essential that small businesses get access to the capital they need to grow their businesses".

His comments were backed by small business owner, Louise George, who runs Peter Popple's Popcorn.

She said: "It is key that the UK Government and banks make finance accessible and give the appropriate support."

The editor of Which? Money, James Daley, highlighted rapid declines in consumer confidence as a result of the deterioration in the economy's performance.

He said: "Until banks begin to lend more freely, or the Government starts to invest again, the outlook will remain bleak."

Source: http://uk.news.yahoo.com/no-qe-rate-rise-bank-england-110836033.html

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