Central Bank Notes: Further (Expected) BoE Action

Posted July 5, 2012 by Editor

[private]

• There was no surprise that the MPC today again voted to maintain Bank Rate at 0.5%. More notable, but also of little surprise, was the decision by the MPC to increase the size of its asset purchase program by £ 50 bln to a total of £ 375 bln (ie now almost 25% of GDP), a same-sized enlargement to that seen last February.
• The BoE stressed that, against the background of continuing tight credit Eurozone meant that, without additional monetary stimulus, it was more likely than not that inflation would undershoot the target in the medium term.
• Relatively flat growth has been due to domestic issues like fiscal consolidation and banking system fragility rather than building uncertainties in the Eurozone.
• Over and beyond the uncertain nature of the near-term economic outlook, in particular, the extent to which Eurozone downside risks may materialize, this potential range of policy tools makes it harder to discern what the BoE may deploy if it deems further stimulus is needed.

UK Jul 5[/private]