Economic growth means Bank unlikely to print more money

By SCOTT REID
Published on 25/10/2012 20:30

BANK of England (BoE) policymakers are almost certain to sit on their hands next month after Britain’s leap out of recession in the third quarter made it less likely that the Bank would inject more money into the economy.

A change of sentiment comes after the governor, Sir Mervyn King, left the door open to further quantitative easing (QE) this week in a speech to business leaders in Wales. He suggested monetary stimulus was still needed to help revive pale growth.

Analysts had been divided on whether the BoE would announce a further bout of QE at next month’s rate-setting meeting after the current stock of £375 billion had been used up.

Yesterday’s revelation that the UK economy had grown by 1 per cent between July and September appeared to catch most analysts by surprise. The most optimistic forecasts had been pitched at about 0.8 per cent with the consensus at 0.6 per cent.

While the economy is likely to struggle to record any growth across the year as a whole, experts yesterday reassessed the chances of more asset-buying stimulus in the wake of the Q3 data.

Citi analyst Michael Saunders said: “We no longer expect the [Bank of England’s] monetary policy committee will expand QE at the upcoming November meeting – previously we forecast a £50bn increase.

“We do expect the MPC will expand QE markedly further over time, but the next move probably will be delayed beyond November.”

Howard Archer, chief UK economist at IHS Global Insight, said it was now looking “an extremely close call” as to whether the Bank would press the button on further QE in November.

Much could depend on survey evidence showing how the economy started off the fourth quarter, he added.“The UK is by no means out of the economic woods and further relapses remain a very real possibility,” noted Archer. “Fiscal austerity, tight credit conditions, muted global economic activity and still serious problems in the eurozone are all likely to hamper growth.”

Economists at Barclays issued a decisive statement on the prospects for further QE, saying: “In the absence of a renewed stalling in the recovery, we expect this month’s asset purchases to be the last.”

Most economists agree that a sustained recovery is far from certain after a string of business surveys pointed to a weak start, at best, to the final quarter of the year while one-off factors were the main drivers behind the Q3 bounce.

The Office for National Statistics estimated that Olympic ticket sales accounted for a fifth of the quarterly GDP rise, which followed three consecutive quarters of contraction.

Stock market reaction was muted, with the FTSE 100 closing flat at 5,805, though sterling hit a one-week high against the dollar.

Stephen Hughes, director of Currencies.co.uk, said: “Although experts anticipate that similar growth levels won’t be matched in Q4, we expect to see sterling rise in the short term against many major currencies.”

John Longworth, director general of the British Chambers of Commerce, said: “The news that the economy returned to growth in the third quarter… will give many businesses the confidence to invest. But the government still has work to do.”