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More QE looms before Mervyn King quits Bank

Mervyn King: crucial decision to make before he leaves Bank. Picture: Reuters

Mervyn King: crucial decision to make before he leaves Bank. Picture: Reuters

  • by SCOTT REID
 

BANK of England governor Sir Mervyn King enters the final throes of his tenure facing a make-or-break decision on whether to pump more cash into Britain’s ailing economy.

Analysts believe the outcome of this week’s meeting of the central bank’s monetary policy committee (MPC) rests on a knife edge as policymakers juggle a raft of conflicting economic data.

King, who will be replaced by Canadian Mark Carney at the start of July, has voted for more quantitative easing (QE) at the past two MPC meetings, but other members have expressed concerns that additional stimulus could stoke inflation.

A trio of purchasing managers’ index surveys spanning the construction, manufacturing and service sectors are due to be released between Tuesday and the conclusion of the MPC meeting on Thursday and could prove crucial to the decision-making.

Howard Archer, chief UK and European economist at think-tank IHS Global Insight, put the odds on a further £25 billion bout of QE in April at 50-50.

He said: “Whether the MPC acts on Thursday or not, we expect the Bank of England to deliver one £25bn portion of QE in the second quarter, taking the stock up to £400bn, with another £25bn portion occurring shortly after Mark Carney takes over as Bank of England governor in July.”

He added there was a “strong likelihood” that interest rates would remain at their record low of 0.5 per cent through the rest of 2013 and 2014.

Citi economist Michael Saunders said: “We expect that the MPC will loosen further via various channels, including extra QE.

“The timing of further stimulus is unclear – and may depend on data and the Eurozone crisis from month to month – but the path to further stimulus is clear, in our view.”

 

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